Coordination/Allocation of Long Term Care Costs with Respect to LTC-1099 and Deduction of Medical Expenses

[Rhoder19]

So the $100 IS taxable since it reduces an otherwise tax deductible expense.

[Rhoder19]

Thank you.  This seems to answer the question.  I would have never found this code section on my own.  I'm going to assume IRS guidance should say: "Long term care benefits from qualified long term care policies ARE NOT INCLUDABLE IN GROSS INCOME, HOWEVER, ANY LONG TERM CARE BENEFIT RECEIVED BY TAXPAYERS REDUCES THE MEDICAL EXPENSE DEDUCTION THAT WOULD OTHERWISE BE ALLOWABLE IF THE LONG TERM CARE EXPENSE WAS PAID DIRECTLY BY THE TAXPAYERS.  Or something like that.

[robs462]

Hello, came across this discussion regarding LTC reimbursement.  I'm helping a relative who received Form 1099-LTC which reports approx $25K in box 1.  In box 3, only 'reimbursed amount' is checked (not per diem).  Box 4, qualified contract, is also checked.   She will be itemizing deductions for 2024.

When itemizing medical expense deductions, TT asks for the amount spent on prescriptions, medical professionals, facility fees, labs, travel, etc.  One of the last questions (at least in desktop version) is "Tell us about any medical reimbursements . . . if your insurance company paid you back for any expenses . . . ".

First question - what is the proper way to account for the $25K reported on 1099-LTC?  Should she:

(a) reduce the amount of facility fees reported (e.g. if spent $100K, only report $75K), or 

(b) report the $25K in that last question, as described above?  (or does it not matter either way?)

Second question -  since Form 1099-LTC was received, it appears that it needs to be entered into the specific LTC category under the Miscellaneous Income section.  By doing so, TT generates Form 8853, which I assume is included in the filing.  It appears that the purpose of this form is to determine if any of the $25K is taxable, which it is not in her case (costs exceed reimbursements).  So it appears that when receiving Form 1099-LTC, two actions are needed:  (1) report it in the appropriate LTC section in TT in order to generate Form 8853, and (2) if itemizing, reduce the medical expense amount by the amount reported on Form 1099-LTC.  Is this correct?   Thanks in advance for any insight.

@Timoshenko

@AmyC

@DavidD66

[Rhoder19]

In my humble opinion the reimbursement reported on the LTC-1099 does reduce the amount of medical expenses deductible on schedule A.  It is not reported as income anywhere, you just reduce the amount of actual expenses paid that you enter on schedule A.  If the reimbursement is from a tax qualified contract you are not required to file any IRS forms as a result of receiving the LTC-1099.

[Timoshenko]

Hi Rhoder19,

I haven't thought about this topic for a year and didn't have to because my mom no longer receives long term care benefits.  However, I thought I'd chime in to get closure.

I'm with you on this.  It comes down to whether the long-term care benefits are considered reimbursements or not.   If they are reimbursements then those reimbursements reduce the $$$ deductible as medical expenses.  Before (in prior post), you had argued that they are not in fact reimbursements ... and your argument had resonated with me, but it sounds like that argument has been shot down.   The end result (to me) is that long term care benefits are EFFECTIVELY taxed by virtue of a loss in deductions. 

I will add that this EFFECTIVE tax is substantial when considering the $$$ spent on long term care.  My mom's taxable income substantially less this year than last.

To conclude, as far as the $100.  Yes, $100 was received in benefits.   And, one then gets $100 back as a "reimbursement".  So, yeah, not being able to deduct as medical expenses seems fair.  However, if one looks at this differently ... where the $100 is a pay out from years of prior long-term care premium payments (and not a reimbursement), then not being able to deduct medical expenses seems unfair, i.e. a "pisser".  That's my perspective for what it is worth.  I would add that because my mom's benefits were "capped" by the state (by virtue of LTC company bankruptcy), it makes the benefits seem more like a payout vs a reimbursement.

[robs462]

@AmyC  @DavidD66 

Can you offer any guidance to at least the first of my two questions above?  Thanks. 

[Rhoder19]

First question answer:  Reduce the amount of long term care expenses actually paid by the $25K reimbursement, i.e. if spent $100K only report $75K as medical expense. 

Second question answer:  I would ignore the 1099-LTC as it pertains to inputting anything in Turbotax.  Since the qualified contract box is checked the benefits are not taxable, so you do not have to fill out any other forms.

[AmyC]

I agree that since the per diem is a qualified contract paying for expenses- it isn't taxed.

The medical deduction is limited to amounts beyond what the LTC covers. If you have medical expenses that exceed the reimbursement, you would have a medical deduction.

For more, see About Publication 502, Medical and Dental Expenses - IRS 

[Timoshenko]

Hi Robs462,

I'll throw in my 2 cents for what it is worth.

I agree with Rhoder19 and AmyC with one exception.  While I agree that the long-term benefits should not be taxed, I'm not entirely true it is by virtue of being a qualified contract.  That is but part of the equation. 

For my mom’s taxes, the key aspect was that per diem benefits not exceed an allowed amount.   Theoretically, if per diem benefits exceeded the allowed amount then one would be taxed on the exceedance.  This is what form 8853 part II was checking ... it was checking for that exceedance.  Ultimately, this form was part of the forms sent to the IRS.

That said, you indicated that “per diem” was not checked but “reimbursed amount” was.  So, I’m not sure what this means.

Personally, I would be hesitant not entering the 1099-LTC into TurboTax because as you indicate, this form is produced by virtue of inputting.  If you don't submit the form, then in my book, that leaves you open to the possibility of the IRS raising a fuss ... which I guarantee this year ... would not be pleasant to deal with.

When I use TurboTax, I like to enter info step by step.  I would suggest doing all other aspects of your taxes and then as last step, inputting the 1099-LTC.   Once entered, you should not see a change in tax owed.

Good luck.

Timoshenko