Short answer: Benefits from a tax-qualified policy are generally tax-free. A reimbursement policy that pays actual care costs is tax-free; a per diem policy that pays a set amount regardless of cost is tax-free up to the greater of actual care costs or $430 per day for 2026.
The tax code treats amounts received under a qualified long-term care contract as reimbursement for medical care, so they are excluded from income. The limit applies to periodic or per diem payments made without regard to actual costs.
For those payments, everything paid on the same insured person (from all LTC policies, and from life policies’ chronic illness accelerated benefits) is added together for the period. The amount above the greater of the per diem limit or the actual qualified long-term care costs, reduced by other reimbursements, is taxable. The per diem limit is $430 per day for 2026 (it was $420 per day for 2025).
In practice, per diem benefits up to the limit, or any amount spent on actual care, are not taxed. A person receiving a large per diem benefit with low actual costs is the case to bring to a tax preparer.