It depends. You indicated that the 1099-LTC box 3 is marked "reimbursed amount". Is that the case for both policies? Do you have two Forms 1099-LTC that are both reimbursement-based? Normally, only per-diem-based payments have a limit on the exclusion from income.
In most cases, long-term care insurance contracts are treated as accident and health insurance contracts. Amounts you receive from them (other than policyholder dividends or premium refunds) are excludable from income in most cases as amounts received for personal injury or sickness. See IRS Publication 525 for more information.
To claim an exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract, you must file Form 8853 with your return.
The exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract is subject to a limit. The limit applies to the total of these payments and any accelerated death benefits made on a per diem or other periodic basis under a life insurance contract because the insured is chronically ill.
“Per diem basis” means payments made on any periodic basis without regard to actual expenses. “Reimbursed basis” means payments made for actual expenses incurred.
Under this limit, the excludable amount for any period is figured by subtracting any reimbursement received (through insurance or otherwise) for the cost of qualified long-term care services during the period from the larger of the following amounts:
- The cost of qualified long-term care services during the period.
- The dollar amount for the period ($420 per day for any period in 2023).
See Section C of Form 8853 and its instructions for more information. The instructions include useful examples.
