Form 8853 is used to report the following:
- Report Archer Medical Savings Account (MSA) contributions (including employer contributions)
- Calculate the Archer MSA deduction
- Report distributions from an Archer MSA or Medicare Advantage MSA
- Report taxable payments from long-term care (LTC) insurance contracts
- Report taxable accelerated death benefits from a life insurance policy
An Archer MSA is a tax-exempt trust or custodial account set up with a U.S. financial institution, such as a bank or an insurance company, used to save money exclusively for future medical expenses. An Archer MSA is similar to a Health Savings Account in that it allows an eligible individual to save and pay for health care expenses on a tax-free basis.
A Medicare Advantage MSA is an Archer MSA designated by Medicare to be used solely to pay the qualified medical expenses of the account holder who is eligible for Medicare.
A LTC insurance contract covers long-term care services. The policyholder is the person who owns the proceeds of the contract or viatical settlement and is required to report the income, even if the proceeds went to a third party.
Archer MSA contributions and distributions
The taxpayer can claim a deduction for a contributions to an Archer MSA whether they itemized deductions or not. Contributions may be made by the taxpayer, spouse, someone else, or an employer. However, the taxpayer and employer cannot contribute to the MSA in the same year. Employer contributions are not tax-deductible, however, contributions by the taxpayer or someone else for the benefit of the taxpayer or spouse may be considered a deductible contribution for tax purposes on the plan holder's return. If the taxpayer is claimed as a dependent by someone else, no deduction for a contribution is allowed.
Distributions from the Archer MSA must be for qualified medical expenses for persons eligible to participate in the plan. Distributions not used to cover unreimbursed qualified medical expenses are subject to an additional 20% tax unless one of the following exceptions applies:
- Distributions are made after death of account holder.
- The account holder becomes disabled.
- The account holder turns 65.
Medicare Advantage MSA contributions and distributions
Only Medicare can contribute to a Medicare Advantage MSA, and the contributions and any earnings aren't taxable to the account holder. Distributions used exclusively to pay for the qualified medical expenses of the account holder aren't taxable, but distributions that aren't used for qualified medical expenses of the account holder are included in income and also may be subject to a penalty.
Long-term care insurance distributions
Amounts paid out of a LTC insurance contract are generally excluded from income, though there is a limitation on excluding per diem payments. If the taxpayer is determined to be terminally ill, both accelerated death benefits and the proceeds of the sale of the policy in a viatical settlement are fully excludible from income. On the other hand, if the taxpayer is determined to be chronically ill the benefits are excludible to the same extent as they would be under a qualified LTC insurance contract.
How are distributions reported to the taxpayer?
- Archer MSA distributions - Form 5498-SA
- Medicare MSA distributions - Form 1099-SA
- Long-term Care Insurance contract payments - Form 1099-LTC
To enter distributions reported on Forms 5498-SA, 1099-SA, and 1099-LTC in TaxSlayer ProWeb, from the Federal Section of the tax return (Form 1040) select:
- Medical Savings Account
Note: This is is a guide to entering the Medical Savings Account Deduction into the TaxSlayer ProWeb program. This is not intended as tax advice.
IRS: Instructions for completing Form 8853
IRS: Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans