If Box 3 is marked "Per Diem" (which will happen for policies that are considered Indemnity policies) then the amount you may exclude from taxable income being reported is limited.
Because benefits were paid on a per diem (indemnity) basis, without regard to the actual long-term care expenses incurred; the amount of benefits that may be excluded from income is subject to a daily maximum amount.
If this per diem (indemnity) limitation is exceeded, part of the benefits received may be taxable. The limit increased in 2023 to $420/day; it's now slightly decreasing to $410/day in 2024.
Any taxable income received that is used on qualified medical expenses, can be claimed with other medical deductions. See Publication 502, Medical and Dental Expenses.
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