Insurance companies, governmental units, and viatical settlement providers issue Form 1099-LTC to long-term care insurance policyholders and insureds when long-term care benefits are paid out. Long-term care benefits includes both payments made under a long-term care insurance contract as well as accelerated death benefits.
When long-term care benefits are paid out, both the policyholder and the insured receive a copy of Form 1099-LTC, Long-Term Care and Accelerated Death Benefits. The policyholder and the insured may be the same person or they may be different,
- Copy B is received by the policyholder, and the income must reported in their tax return, even if payment is assigned to a third party.
- Copy C is received by the insured, is for information purposes only, and does not need to be reported in their tax return.
On the form, there are several important check boxes:
- Box 3 "Per Diem" indicates payments were made without regard to actual expenses. "Reimbursed amount" indicates payments were made for actual expenses incurred. Neither box may be checked if the insured was terminally ill.
- Box 4 "Qualified Contract" - if checked, amounts paid are generally excluded from income, though there is a limitation on the exclusion of per diem payments. If unchecked, the payments should be reported as Other Income in Schedule 1 (Form 1040) notated "LTC".
- Box 5 "Chronically ill" or "Terminally ill" may be checked, along with the date certified.
The amounts reported on Form 1099-LTC are generally included on Form 8853 Section C for the purpose of determining if any of the benefits received are taxable. In TaxSlayer Pro, Form 1099-LTC can be selected from the Form Finder in the tax return (Form 1040) or from the Main Menu of the return select:
- Medical Savings Account Deduction (8853)
- Section C - Long-Term Care Insurance Contracts - Depending on the insurance contract(s), there may be one or multiple LTC periods. An LTC period is the period during which benefits were paid out, and based on the contract the benefits may have been paid the same on a daily or monthly basis, or there may have been different per diem rates during different periods. You will need to create as many Schedule C sections as there are LTC periods during the tax year. Note also that if there are multiple payees, they must all use the same methodology for determining the LTC period.
- Select New and enter the information requested:
- Section C is For - For a return filed MFJ, indicate whether the form is for the taxpayer or the spouse.
- SSN of Insured
First Name of Insured
Last Name of Insured - Enter the insured's SSN and first and last name.
- Other Individuals Received Payments on a Per Diem - The taxpayer will need to indicate if others received payments. If there were multiple payees and the insured was not terminally ill, the taxpayer will need to provide information regarding the other payees and how much they were paid. See the Form 8853 instructions under the section heading "Multiple Payees" for more information on how multiple payees affect the amounts the taxpayer will enter.
- Insured was a Terminally Ill Individual - This designation is indicated in Box 5 of the Form 1099-LTC.
- Gross LTC Payments Received on a Per Diem - Enter the total Form(s) 1099-LTC Box 1 payments received on a per diem basis.
- Qualified LTC Insurance Contracts Included in Amount Above - Enter the amount included in gross payments from Form(s) 1099-LTC with Box 4 checked.
- Accelerated Death Benefits Received on a Per Diem - Enter the total Form(s) 1099-LTC Box 2 payments received on a per diem basis.
- Costs Incurred for Qualified LTC Services Provided - For a chronically ill insured, enter the total cost of qualified LTC services incurred.
- Reimbursements for Qualified LTC Services Provided - If the "Reimbursed amount" check box is checked, enter the total amount of reimbursements received as well as reimbursements expected to be received for payments made during the LTC period. (Note: don't include reimbursements received under a contract issued before August 1, 1996 unless it was subsequently modified on or after that date to increase the reimbursements.)
- Number of Days of the LTC Period - Enter the number of days in the LTC period. This amount will be multiplied by the amount of the tax year's per diem limit for periodic payments received under a qualified LTC insurance contract to determine the per diem limitation. The per diem is established statutorily and subject to an annual cost of living increase.