Are LTC Benefits Tax-Free?

Shawn Plummer

CEO, The Annuity Expert

Let’s talk about the question, “Are ltc benefits tax-free? They’re a lifeline for many when they need it the most, but the world of insurance can feel like a maze of jargon, fine print, and, yes, taxes. Approaching it is essential; I’m here to guide you. This guide will focus on the tax implications of LTC benefits to help you make informed decisions for your financial health.

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What Are Long-Term Care (LTC) Benefits?

Understanding LTC benefits starts at the ground level. These benefits are paid out by LTC insurance policies designed to cover the cost of long-term care services. This includes in-home care, assisted living, and nursing home care. But when it comes to taxes, are these benefits considered taxable income? The short answer: it depends.


Let’s take John, for example, who receives LTC benefits to cover his assisted living costs. Depending on various factors, these benefits may or may not be included in his taxable income. We’ll delve into these variables below.

Are Long-Term Care Benefits Tax-Free

When Are LTC Benefits Tax-Free?

The IRS provides some relief regarding taxes on LTC benefits, and the benefits can be tax-free under certain circumstances.

Per Diem Policies

If your LTC insurance is structured as a ‘per Diem or ‘indemnity’ policy, which pays a fixed daily benefit amount, the benefits could be tax-free up to a specific limit. The IRS updates this limit annually.


Following John’s story, suppose his LTC insurance is a per diem policy. Then, if the benefits he receives in a year don’t exceed the IRS limit, they will not be considered taxable income.

When Are LTC Benefits Taxable?

However, there are situations where LTC benefits could be taxable. This is important to keep in mind when planning your financial future.

Reimbursement Policies

If your policy is a reimbursement policy, which pays the actual costs of your care up to the policy’s daily limit, the benefits can be tax-free as long as they don’t exceed your actual long-term care costs.

Cash Benefits Exceeding IRS Limits

The excess could be taxable if you receive cash benefits that exceed the IRS per diem limit or your actual long-term care costs.


If John’s LTC insurance were a reimbursement policy, and the benefits exceeded his care costs, the excess amount would typically be considered taxable income.

Are Ltc Benefits Tax-Free

The Tax Treatment of LTC Insurance Premiums

Another factor to consider is how your LTC insurance premiums are treated for tax purposes. For example, these premiums can sometimes be deductible, providing a significant tax advantage.

Age-Based Deduction Limits

The IRS sets age-based limits on the amount of LTC insurance premiums you can deduct, which are updated annually.


Suppose John is 55 years old. He can deduct up to the IRS limit for his age group for his LTC insurance premiums.

Are Ltc Benefits Tax-Free

Next Steps

In conclusion, the tax implications of LTC benefits can be complex, but understanding them is crucial for intelligent financial planning. While LTC benefits can be tax-free under certain circumstances, there can be situations where they are taxable. Understanding the nature of your LTC insurance policy, the IRS limits and the tax treatment of your premiums will help you navigate this complex terrain. Remember, it’s always a good idea to consult with a tax advisor or a financial planner to understand the nuances of your situation.

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Frequently Asked Questions

How can ltc benefits be received tax-free by an individual?

In the United States, long-term care (LTC) benefits can be received tax-free by an individual if the payments are made under a qualified LTC insurance policy and meet certain criteria outlined by the IRS.

Do i need to report 1099-ltc on tax return?

Yes, you generally need to report Form 1099-LTC on your tax return. It provides information about long-term care benefits received and is used to calculate any taxable or tax-free portions.

Are non qualified long-term care benefits taxable?

Non-qualified long-term care benefits are generally taxable. The amounts received are subject to income tax unless they are reimbursed for medical expenses or qualify for an exclusion under specific circumstances outlined by the IRS.

Do long-term care benefits reduce medical expense deduction?

Long-term care benefits can potentially reduce the medical expense deduction. If the benefits cover medical expenses that would have otherwise been deductible, the amount of the deduction may be reduced. It is recommended to consult a tax professional for specific advice.

Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed insurance agent and annuity broker with over a decade of in-depth experience. Since beginning his journey in 2009, he has not only been pivotal in selling and educating about annuities and insurance products but has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates. 

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