Generally, no. Tax-qualified Long-Term Care Insurance benefits come to you tax-free. Insurance companies that pay long-term care insurance benefits are required by the Internal Revenue Service (IRS) to provide claimants with a 1099-LTC. This form is used to report the payments made under a long-term care insurance contract. Insurance companies usually issue these 1099 LTC Forms in January for the prior tax year.
The Form 1099-LTC reflects payments made directly to you as well as those payments made to third parties on your behalf. Some people are concerned when they receive these IRS forms in the mail since the amounts reported to you, and the IRS can be very high (as little as $20,000, $100,000, or more). It causes policyholders to wonder about the tax implications of their LTC benefit; however, the 1099 forms are required simply to show the IRS you received tax-free benefits from your long-term care insurance policy. It does not necessarily mean that the amount is taxable income to you.
Request the Instructions for Form 1099-LTC from the IRS. You can request free tax forms and guides by calling the IRS at 1-800-TAX-Form or 1-800-829-3676.
The form looks something like this:
Be sure to speak with your tax advisor. Below is a simple reference to the meaning of numbers reported in each box on the 1099 LTC.
Box 1. Gross benefits paid by the insurance company.
Box 2. Does not apply to long-term care insurance.
Box 3. This indicates benefits paid (as reflected in Box 1) as either on a Per Diem (Indemnity) basis or as a Reimbursement for actual long-term care expenses incurred.
Box 4: This is an optional field that indicates if benefits were paid from a Tax-Qualified long-term care insurance contract.
Box 5: The Chronically Ill box will always be checked for LTC. The Terminally Ill box is not applicable to long-term care
PAYER'S NAME: The name of the insurance company and its address.
OMB No.: The tax year for which amounts are reported.
PAYER'S FEDERAL IDENTIFICATION NUMBER: The federal tax identification number for the insurance company that paid the benefit amounts.
POLICYHOLDER'S IDENTIFICATION: The policyholder's identification number, which should be the same as what is in box 10, the insured's Social Security number.
INSURED'S SOCIAL SECURITY: The Social Security number, name, and address for the insured who was the recipient of benefits.
Account Number: The actual claim number. This box may also contain the Total Number of Days paid if the policy is an Indemnity (per diem paid) policy.
Date Certified: If the policy uses a Reimbursement formula, this box will show the date certified as Chronically Ill. If the policy uses a Per Diem (indemnity) formula, it will show the claim's original date of loss.
Additional Explanations Regarding Box 3