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We have a policy on my husband. I used it for him to go to adult day care this year as they determined he needs 24x7 care. He has Alzheimers. I then got a 1099 from them for the amount they paid out.

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They send this out at the end of the year to let you know they have sent this information to the IRS.

You subtract the amount they paid out for the adult day care in 2014 from the total amount you spent for your husband to attend the adult day care. The difference is what you can claim as a medical deduction on your taxes. In other words, you can only claim a medical deduction on the money you spent on the adult day care in 2014 that was not paid for by the LT insurance.
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Yes, the insurance company is required to report distributions. You then report the distribution on form 8853. There is a need to verify that your husband was 'qualified' to receive these benefits --- that is he met the criteria. If he didn't meet the criteria, the payments would be taxable to you. It sounds like he will clearly meet the criteria so it is just a reporting issue for you.
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I did not know that long term care insurance paid for adult day care. That is wonderful.! They usually send a document after the end of the year stating how much the paid on the person.
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