Taxable Long Term Care LTC payments

[JTT_for]

I have entered information for Long Term Care insurance per diem payments received (1099-LTC).  Turbotax says I have taxable LTC payments even though the total paid is less than the number of days payments were received*$420.  Form 8853 seems to have it right.  It says taxable payments are Zero, but the zero is not included on Schedule 1, line 8e.  Instead, the difference between the total per diem LTC payments and the “Cost of qualified LTC Services” (which is less) is entered on Schedule 1, line 8e, as income from form 8853.   What's up?  Thanks.

[MonikaK1]

You might try revisiting the interview for long-term care payments and check your entries, and consider the method you chose to define the LTC period.

Following the link for the underscored term LTC period in the entry screen for LTC costs provides additional information regarding the number of days, excerpted below:

The number of days in your LTC period depends on which method you choose to define the LTC period. Generally, you may choose either the Contract Period method or the Equal Payment Rate method. However, special rules apply if persons in addition to yourself received per diem payments during 2022 either under a qualified LTC insurance contract or as accelerated death benefits with respect to the insured listed on line 16a of this form. See Multiple Payees for details.

Method 1 - Contract Period

You may choose as the LTC period the same period the insurance company uses under the contract to compute the benefits it pays to you. For example, your LTC period is one day if the qualified LTC insurance contract computes benefits on a daily basis. In that case, you figure your per diem limitation and taxable payments on a daily basis.

Method 2 - Equal Payment Rate

You may choose as your LTC period the period during which the payment rate the insurance company uses to compute the benefits it pays you does not vary. For example, you would have two LTC periods if the qualified LTC insurance contract computes per diem payments at the rate of $165 per day from February 1, 2022 through May 31, 2022, and then at a rate of $185 per day from June 1, 2022, through December 31, 2022. The first LTC period is 121 days (from February 1 through May 31) and the second LTC period is 214 days (from June 1, through December 31).

You may choose this method even if you have multiple qualified LTC insurance contracts. For example. you have one LTC period if you have one qualified LTC insurance contract that computes per diem payments at the rate of $100 per day from March 1, 2022, through December 31, 2022, and you have a second qualified LTC insurance contract that computes per diem amounts at the rate of $1,500 per month from March 1, 2022, through December 31, 2022, because each payment rate does not vary during the LTC period.

However, you would have two LTC periods if the facts were the same as above except that the second qualified LTC insurance contract did not begin making per diem payments until May 1, 2022. The first LTC period is 61 days (from March 1 through April 30) and the second LTC period is 245 days (from May 1 through December 31).

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. 

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 ($380 per day for any period in 2020).

See the IRS definition of Qualified long-term care services.