When it comes to specialized health-related tax accounts, Form 8853 plays a vital role in helping eligible taxpayers report contributions, distributions, and policy-related benefits tied to two specific programs: Archer Medical Savings Accounts (Archer MSAs) and Long-Term Care Insurance Contracts. Although not as commonly used today as Health Savings Accounts (HSAs), Archer MSAs still exist and provide unique tax benefits. Meanwhile, long-term care policies continue to be a crucial part of retirement and elder care planning.
In this guide, we’ll walk through what Form 8853 covers, who needs to file it, how it’s structured, and how it impacts your tax return.
What Is Form 8853?
IRS Form 8853 is used by individuals to report specific health-related financial activity, including:
- Contributions to and distributions from Archer MSAs
- Employer contributions to Archer MSAs
- Amounts received under long-term care (LTC) insurance contracts
- Accelerated death benefits received on certain life insurance policies for chronically or terminally ill individuals
This form is filed along with Form 1040 and is essential to ensure that the taxpayer receives proper tax benefits and avoids any penalties associated with ineligible withdrawals or excess contributions.
Understanding Archer Medical Savings Accounts (Archer MSAs)
Archer MSAs are tax-advantaged savings accounts created for self-employed individuals and employees of small businesses (fewer than 50 employees). While no new Archer MSAs can be established as of recent IRS regulations, existing accounts can still be funded and used for qualifying medical expenses.
Key features include:
- Contributions are deductible or made pre-tax by the employer
- Earnings grow tax-deferred
- Distributions used for qualified medical expenses are tax-free
Who Must File Form 8853?
You must file Form 8853 if:
- You or your employer contributed to an Archer MSA during the year
- You took distributions from an Archer MSA
- You received payments from a long-term care insurance contract
- You received accelerated death benefits from a life insurance policy
Even if your Archer MSA was inactive during the year, distributions or account earnings may still require reporting. Additionally, LTC contract payments—especially those not reimbursed through other insurance—must be documented through this form.
Structure of Form 8853
Form 8853 consists of three parts. Not every filer will need to complete all sections—it depends on the source of your medical-related transactions.
Part I: Archer MSAs
This part is used to report:
- Contributions made by the taxpayer or employer
- Total distributions during the year
- Qualified medical expenses paid
- Excess contributions and penalties
You’ll need to calculate whether your distributions were used exclusively for qualified medical expenses. If not, a portion of the distribution may be taxable, and an additional 20% penalty may apply to non-qualified uses unless exceptions apply (e.g., disability, death, age 65+).
Part II: Long-Term Care (LTC) Insurance Contracts
This section reports amounts received under qualified LTC insurance contracts. It also determines whether the benefits are taxable or excluded under IRS rules.
Information to include:
- Policyholder’s name and taxpayer identification number (TIN)
- Amounts received from the LTC policy
- Daily benefit limits and actual expenses incurred
If the amount received exceeds the greater of actual LTC costs or the per diem limit ($420/day for 2024), the excess may be taxable.
Part III: Accelerated Death Benefits
This part is used if you received accelerated death benefits as a chronically or terminally ill insured individual from a life insurance policy. The IRS allows certain exclusions if the benefits are for qualified LTC services or if the individual is terminally ill and expected to die within 24 months.
You’ll need to provide details like:
- Type of insured condition (chronically or terminally ill)
- Per diem amounts received
- Medical expense documentation
Qualified Long-Term Care Insurance Contracts
A qualified LTC insurance contract must meet IRS criteria, including:
- Guaranteed renewability
- No cash surrender value
- Benefits triggered by inability to perform at least two Activities of Daily Living (ADLs)
- Coverage for services prescribed by a licensed healthcare provider
Only benefits received under qualified contracts may be excluded from income up to IRS per diem limits or actual cost thresholds.
Tax Implications and Benefits
For Archer MSAs:
- Contributions are deductible (if made by taxpayer)
- Earnings grow tax-free
- Qualified distributions are not taxable
- Non-qualified distributions are taxable and may incur a 20% penalty
For LTC and Accelerated Death Benefits:
- Tax-free up to the IRS daily limit ($420/day for 2024) or actual expenses
- Amounts over the exclusion threshold are included in gross income
- Special rules apply for terminally ill individuals (no dollar limits on exclusions)
Common Errors to Avoid
- Failing to report distributions from Archer MSAs, even if used for medical expenses
- Claiming tax-free treatment for non-qualified LTC insurance
- Misclassifying accelerated death benefits as fully tax-free
- Not attaching Form 8853 when required, which could lead to penalties
Filing Form 8853
Form 8853 is filed as an attachment to your annual Form 1040 or Form 1040-SR. It is due by the regular tax filing deadline (typically April 15). There is no separate e-filing mechanism—just ensure it is included with your federal return if any qualifying events apply.
You can download the latest version of Form 8853 directly from the IRS website:
Tips for Taxpayers and Seniors
- Consider transitioning from Archer MSAs to Health Savings Accounts (HSAs) if eligible, as HSAs offer broader benefits
- Keep meticulous records of LTC payments, service provider receipts, and policy details
- Consult a tax advisor when receiving accelerated death benefits to ensure exclusions apply
- If over age 65, you may avoid penalties for non-qualified MSA distributions—but income taxes may still apply
Conclusion: Form 8853 Is Crucial for Specialized Health Tax Reporting
Form 8853 remains a key tax reporting document for individuals using Archer MSAs, receiving LTC insurance benefits, or accelerated death benefits. Even though Archer MSAs are becoming rare, many people still maintain them and need to report transactions properly to retain favorable tax treatment.
Similarly, long-term care insurance is becoming increasingly important as people age and require in-home care or nursing facility services. If you are covered by a qualifying policy or have received benefits, ensuring accurate reporting via Form 8853 is essential to avoid surprises at tax time.
Understanding this form can also help you plan for future healthcare needs while optimizing your tax outcome.
