Instructions for Form 8853 |
2006 Tax Year |
This is archived information that pertains only to the 2006 Tax Year. If you are looking for information for the current tax year, go to the Tax Prep Help Area.
Name and social security number (SSN).
Enter your name(s) and SSN as shown on your tax return. If filing jointly and both you and your spouse each have an
Archer MSA or each have a
Medicare Advantage MSA, enter the SSN shown first on your tax return.
To be eligible for an Archer MSA, you (or your spouse) must be an employee of a small employer or be self-employed. You (or
your spouse) must be
covered under a high deductible health plan (HDHP) and have no other health coverage except permitted coverage. You must not
be enrolled in Medicare
and cannot be claimed as a dependent on someone else's 2006 tax return. You must be an eligible individual on the first day
of a month to take an
Archer MSA deduction for that month.
A small employer is generally an employer who had an average of 50 or fewer employees during either of the last 2 calendar
years. See Pub. 969 for
details.
Generally, an Archer MSA is a medical savings account set up exclusively for paying the qualified medical expenses of the
account holder or the
account holder's spouse or dependent(s).
Qualified Medical Expenses
Generally, qualified medical expenses for Archer MSA purposes are unreimbursed medical expenses that could otherwise be deducted
on Schedule A
(Form 1040). See the Instructions for Schedule A and Pub. 502, Medical and Dental Expenses (Including the Health Coverage
Tax Credit). However, you
cannot treat insurance premiums as qualified medical expenses unless the premiums are for:
-
Long-term care (LTC) insurance,
-
Health care continuation coverage, or
-
Health care coverage while receiving unemployment compensation under federal or state law.
High Deductible Health Plan
An HDHP is a health plan that meets the following requirements.
If you have an Archer MSA, you (and your spouse, if you have family coverage) cannot have any health coverage other than an
HDHP. But your spouse
can have health coverage other than an HDHP if you are not covered by that plan.
Exceptions.
You can have additional insurance that provides benefits only for:
-
Liabilities under workers' compensation laws, tort liabilities, or liabilities arising from the ownership or use of property,
-
A specific disease or illness, or
-
A fixed amount per day (or other period) of hospitalization.
You can also have coverage (either through insurance or otherwise) for accidents, disability, dental care, vision
care, or long-term care.
An individual generally is considered disabled if he or she is unable to engage in any substantial gainful activity due to
a physical or mental
impairment which can be expected to result in death or to continue indefinitely.
If the account holder's surviving spouse is the designated beneficiary, the Archer MSA is treated as if the surviving spouse
were the account
holder. The surviving spouse completes Form 8853 as though the Archer MSA belonged to him or her.
If the designated beneficiary is not the account holder's surviving spouse, or there is no designated beneficiary, the account
ceases to be an
Archer MSA as of the date of death. The beneficiary completes Form 8853 as follows.
-
Enter “Death of Archer MSA account holder” across the top of Form 8853.
-
Enter the name(s) shown on your tax return and your SSN in the spaces provided at the top of the form and skip Part II.
-
On line 8a, enter the fair market value of the Archer MSA as of the date of death.
-
On line 9, for a beneficiary other than the estate, enter qualified medical expenses incurred by the account holder before
the date of death
that you paid within 1 year after the date of death.
-
Complete the rest of Part III.
If the account holder's estate is the beneficiary, the value of the Archer MSA as of the date of death is included in the
account holder's final
income tax return. Complete Form 8853 as described above, except you should complete Part II, if applicable.
The distribution is not subject to the additional 15% tax. Report any earnings on the account after the date of death as income
on your tax return.
Deemed Distributions From Archer MSAs
The following situations result in deemed distributions from your Archer MSA.
-
You engaged in any transaction prohibited by section 4975 with respect to any of your Archer MSAs, at any time in 2006. Your
account ceases
to be an Archer MSA as of January 1, 2006, and you must include the fair market value of all assets in the account as of January
1, 2006, on line
8a.
-
You used any portion of any of your Archer MSAs as security for a loan at any time in 2006. You must include the fair market
value of the
assets used as security for the loan as income on Form 1040, line 21; or Form 1040NR, line 21.
Any deemed distribution will not be treated as used to pay qualified medical expenses. Generally, these distributions are
subject to the additional
15% tax.
Part I—General Information
Complete this part if contributions were made for 2006 by:
-
You (or your employer) to your Archer MSA, or
-
Your spouse (or his or her employer) to your spouse's Archer MSA (if you are filing a joint return).
Check “Yes” on line 1a if you or your employer made contributions to your Archer MSA for 2006, including contributions for 2006 made
from
January 1, 2007, through April 16, 2007. Otherwise, check the “No” box on line 1a.
Check “Yes” on line 2a if you are filing a joint return and your spouse (or your spouse's employer) made contributions to your spouse's
Archer
MSA for 2006, including contributions for 2006 made from January 1, 2007, through April 16, 2007. Otherwise, check the “No” box on line 2a.
Check “Yes” on line 1b or 2b only if the account holder is considered previously uninsured.
An account holder is considered previously uninsured if the HDHP coverage began after June 30, 1996, and the account holder
has:
-
Self-only coverage under an HDHP and did not have any health plan coverage at any time during the 6-month period before coverage
under the
HDHP began, or
-
Family coverage under an HDHP and neither the account holder nor the account holder's spouse had any health plan coverage
at any time during
the 6-month period before coverage under the HDHP began.
In determining whether an account holder is previously uninsured, disregard any health insurance that is permitted in addition
to the HDHP. See
Other Health Coverage on page 1.
If covered by a self-only HDHP and a family HDHP, indicate which plan was in effect longer during the year.
Part II—Archer MSA Contributions and Deductions
Use Part II to figure:
-
Your Archer MSA deduction,
-
Any excess contributions you made, and
-
Any excess contributions made by an employer (see Excess Employer Contributions on page 4).
Figuring Your Archer MSA Deduction
The amount you can deduct for Archer MSA contributions is limited by:
-
The applicable portion of the HDHP's annual deductible (line 5), and
-
Your compensation from the employer maintaining the HDHP (line 6).
Any employer contributions made to your Archer MSA prevent you from making deductible contributions. See Employer Contributions to an Archer
MSA below. Also, if you or your spouse made contributions in addition to any employer contributions, you may have to pay an additional
tax. See
Excess Contributions You Make on page 3.
You cannot deduct any contributions you made after you became enrolled in Medicare. Also, you cannot deduct contributions
if you can be claimed as
a dependent on someone else's 2006 tax return.
Employer Contributions to an Archer MSA
If an employer made contributions to your Archer MSA, you are not entitled to a deduction. If you and your spouse are covered
under an HDHP with
family coverage and an employer made contributions to either of your Archer MSAs, neither you nor your spouse are allowed
to make deductible
contributions to an Archer MSA. If you and your spouse each have an Archer MSA with self-only coverage and only one of you
received employer
contributions to an Archer MSA, the other spouse is allowed to make deductible contributions to an Archer MSA.
Complete lines 3 through 7 as instructed on the form unless 1 or 2 below applies.
-
If employer contributions to an Archer MSA prevent you from taking a deduction for amounts you contributed to your Archer
MSA, complete Part
II as follows.
-
Complete lines 3 and 4.
-
Skip lines 5 and 6.
-
Enter -0- on line 7.
-
If line 4 is more than zero, see Excess Contributions You Make
on page 3.
-
If you and your spouse have more than one Archer MSA, complete Part II as follows.
-
If either spouse has an HDHP with family coverage, you both are treated as having only the family coverage plan. Disregard
any plans with
self-only coverage.
-
If both spouses have HDHPs with family coverage, you both are treated as having only the family coverage plan with the lowest
annual
deductible.
-
If both spouses have HDHPs with self-only coverage, complete a separate Form 8853, Section A, Part II, for each spouse. Enter
“statement” across the top of each Form 8853, fill in the name and SSN, and complete Part II. Next, add lines 3, 4, and 7 from the two
statement
Forms 8853 and enter those totals on the respective lines of the controlling Form 8853 (the combined Form 8853 for both spouses).
Do not complete
lines 5 and 6 of the controlling Form 8853. Attach the two statement Forms 8853 to your tax return after the controlling Form
8853.
Employer contributions include any amount an employer contributes to any Archer MSA for you or your spouse for 2006. These
contributions should be
shown in box 12 of Form W-2 with code R. If your employer made excess contributions, you may have to report the excess as
income. See Excess
Employer Contributions on page 4 for details.
Do not include amounts rolled over from another Archer MSA. See Rollovers on page 4.
Go through the chart at the top of the Line 5 Limitation Chart and Worksheet on page 3 for each month of 2006. Enter the result on the
worksheet next to the corresponding month.
If eligibility and coverage of both you and your spouse did not change from one month to the next, enter the same number you
entered for the
previous month. If eligibility and coverage did not change during the entire year, figure the number for January only, and
enter this amount on Form
8853, line 5.
More than one HDHP.
If you and your spouse had more than one HDHP on the first of the month and one of the plans provides family coverage,
use the Family
coverage rules on the chart and disregard any plans with self-only coverage. If you and your spouse both have HDHPs with family coverage
on the
first of the month, you both are treated as having only the family coverage plan with the lowest annual deductible.
Married filing separately.
If you have an HDHP with family coverage and are married filing separately, enter only 37.5% (.375) (one-half of 75%)
of the annual deductible on
the worksheet; or, if you and your spouse agree to divide the 75% of the annual deductible in a different manner, enter your
share.
Compensation includes wages, salaries, professional fees, and other pay you receive for services you perform. It also includes
sales commissions,
commissions on insurance premiums, pay based on a percentage of profits, tips, and bonuses. Generally, these amounts are included
on the Form(s) W-2
you receive from your employer(s). Compensation also includes net earnings from self-employment, but only for a trade or business
in which your
personal services are a material income-producing factor. This is your income from self-employment minus expenses (including
the one-half of
self-employment tax deduction). Generally, net earnings and self-employment tax deduction are shown on the Schedule SE (Form
1040) you complete for
your business or farm. Compensation does not include any amounts received as a pension or annuity and does not include any
amount received as deferred
compensation.
If you (or your employer) contributed more to your Archer MSA than is allowable, you may have to pay an additional tax on
the excess contributions.
Figure the excess contributions using the instructions below. See Form 5329, Additional Taxes on Qualified Plans (Including
IRAs) and Other
Tax-Favored Accounts, to figure the additional tax.
Excess Contributions You Make
To figure your excess contributions, subtract your deductible contributions (line 7) from your actual contributions (line
4). However, you can
withdraw some or all of your excess contributions for 2006 and they will be treated as if they had not been contributed if:
-
You make the withdrawal by the due date, including extensions, of your 2006 tax return (but see the Note on page 4),
-
You do not claim a deduction for the amount of the withdrawn contributions, and
-
You also withdraw any income earned on the withdrawn contributions and include the earnings in “Other income” on your tax return for
the year you withdraw the contributions and earnings.
Excess Employer Contributions
Excess employer contributions are the excess, if any, of your employer's contributions over the smaller of (a) your limitation
on line 5, or (b)
your compensation from the employer(s) who maintained your HDHP (line 6). If the excess was not included in income on Form
W-2, you must report it as
“Other income” on your tax return. However, you can withdraw some or all of the excess employer contributions for 2006 and they will be
treated
as if they had not been contributed if:
-
You make the withdrawal by the due date, including extensions, of your 2006 tax return (but see the Note below),
-
You do not claim an exclusion from income for the amount of the withdrawn contributions, and
-
You also withdraw any income earned on the withdrawn contributions and include the earnings in “Other income” on your tax return for
the year you withdraw the contributions and earnings.
Note.
If you timely filed your return without withdrawing the excess contributions, you can still make the withdrawal no later than
6 months after
the due date of your tax return, excluding extensions. If you do, file an amended return with “Filed pursuant to section 301.9100-2” written at
the top. Include an explanation of the withdrawal. Make all necessary changes on the amended return (for example, if you reported
the contributions as
excess contributions on your original return, include an amended Form 5329 reflecting that the withdrawn contributions are
no longer treated as having
been contributed).
Part III—Archer MSA Distributions
Enter the total distributions you and your spouse received in 2006 from all Archer MSAs. These amounts should be shown in
box 1 of Form 1099-SA.
Include on line 8b any distributions you received in 2006 that were rolled over. See Rollovers below. Also include any excess
contributions (and the earnings on those excess contributions) included on line 8a that were withdrawn by the due date, including
extensions, of your
return. See the instructions for line 7 beginning on page 3.
A rollover is a tax-free distribution (withdrawal) of assets from one Archer MSA that is reinvested in another Archer MSA
or a health savings
account. Generally, you must complete the rollover within 60 days following the distribution. You can make only one rollover
contribution to an Archer
MSA during a 1-year period. See Pub. 590, Individual Retirement Arrangements (IRAs), for more details and additional requirements
regarding rollovers.
Note.
If you instruct the trustee of your Archer MSA to transfer funds directly to the trustee of another Archer MSA, the transfer
is not considered
a rollover. There is no limit on the number of these transfers. Do not include the amount transferred in income, deduct it
as a contribution, or
include it as a distribution on line 8a.
In general, include on line 9 distributions from all Archer MSAs in 2006 that were used for the qualified medical expenses
(see page 1) of:
-
Yourself and your spouse.
-
All dependents you claim on your tax return.
-
Any person you could have claimed as a dependent on your return except that:
-
The person filed a joint return,
-
The person had gross income of $3,300 or more, or
-
You, or your spouse if filing jointly, could be claimed as a dependent on someone else's return.
However, if a contribution was made to an Archer MSA in 2006 (by you or your employer), do not include on line 9 withdrawals
from an Archer MSA if
the individual for whom the expenses were incurred was not covered by an HDHP or was covered by a plan that was not an HDHP
(other than the exceptions
listed on page 1) at the time the expenses were incurred.
Example.
In 2006, you were covered by an HDHP with self-only coverage and your spouse was covered by a health plan that was
not an HDHP. You made
contributions to an Archer MSA for 2006. You cannot include on line 9 withdrawals made from the Archer MSA to pay your spouse's
medical expenses
incurred in 2006 because your spouse was covered by a plan that was not an HDHP.
You cannot take a deduction on Schedule A (Form 1040) for any amount you include on line 9.
Archer MSA distributions included in income (line 10) are subject to an additional 15% tax unless one of the following exceptions
apply.
Exceptions to the Additional 15% Tax
The additional 15% tax does not apply to distributions made on or after the date that the account holder—
If any of the exceptions apply to any of the distributions included on line 10, check the box on line 11a. Enter on line 11b
only 15% (.15) of
any amount included on line 10 that does not meet any of the exceptions.
Example 1.
You turned age 66 in 2006 and had no Archer MSA during 2006. Your spouse turned age 63 in 2006 and received a distribution
from an Archer MSA that
is included in income. Do not check the box on line 11a because your spouse (the account holder) did not meet the age exception
for the distribution.
Enter 15% of the amount from line 10 on line 11b.
Example 2.
Both you and your spouse received distributions from your Archer MSAs in 2006 that are included in income. You were
age 65 at the time you
received the distributions and your spouse was age 63 when he or she received the distributions. Check the box on line 11a
because the additional 15%
tax does not apply to the distributions you received (because you met the age exception). However, the additional 15% tax
does apply to your spouse's
distributions. Enter on line 11b only 15% of the amount of your spouse's distributions included in line 10.
Example 3.
You turned age 65 in 2006. You received distributions that are included in income both before and after you turned
age 65. Check the box on line
11a because the additional 15% tax does not apply to the distributions made after the date you turned age 65. However, the
additional 15% tax does
apply to the distributions made on or before the date you turned age 65. Enter on line 11b, 15% of the amount of these distributions
included in line
10.
Section B—Medicare Advantage MSA Distributions
Complete Section B if you (or your spouse, if filing jointly) received distributions from a Medicare Advantage MSA in 2006.
If both you and your
spouse received distributions, complete a separate Form 8853, Section B, for each spouse. Enter “statement” across the top of each Form 8853,
fill in the name and SSN, and complete Section B. Next, add lines 12, 13, 14, and 15b from the two statement Forms 8853 and
enter those totals on the
respective lines of the controlling Form 8853 (the combined Form 8853 for both spouses). If either spouse checked the box
on line 15a of the statement
Form 8853, check the box on the controlling Form 8853. Attach the two statement Forms 8853 to your tax return after the controlling
Form 8853.
A Medicare Advantage MSA is an Archer MSA designated as a Medicare Advantage MSA to be used solely to pay the qualified medical
expenses of the
account holder. To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare and have an HDHP that meets
the Medicare guidelines.
Contributions to the account can be made only by Medicare. The contributions and any earnings, while in the account, are not
taxable to the account
holder. A distribution used exclusively to pay for the qualified medical expenses of the account holder is not taxable. Distributions
that are not
used for qualified medical expenses of the account holder are included in income and also may be subject to a penalty.
If the account holder's surviving spouse is the designated beneficiary, the Medicare Advantage MSA is treated as a regular
Archer MSA (not a
Medicare Advantage MSA) of the surviving spouse for distribution purposes. Follow the instructions in Section A for Death of Account Holder
that begin on page 1.
If the designated beneficiary is not the account holder's surviving spouse, or there is no designated beneficiary, the account
ceases to be an MSA
as of the date of death. The beneficiary completes Form 8853 as follows.
-
Enter “Death of Medicare Advantage MSA account holder” across the top of Form 8853.
-
Enter the name(s) shown on your tax return and your SSN in the spaces provided at the top of the form. Skip Section A.
-
On line 12, enter the fair market value of the Medicare Advantage MSA as of the date of death.
-
On line 13, for a beneficiary other than the estate, enter qualified medical expenses incurred by the account holder before
the date of
death that you paid within 1 year after the date of death.
-
Complete the rest of Section B.
If the account holder's estate is the beneficiary, the value of the Medicare Advantage MSA as of the date of death is included
in the account
holder's final income tax return.
The distribution is not subject to the additional 50% tax. Report any earnings on the account after the date of death as income
on your tax return.
Enter the total distributions you received in 2006 from all Medicare Advantage MSAs. These amounts should be shown in box
1 of Form 1099-SA. This
amount should not include any erroneous contributions made by Medicare (or any earnings on the erroneous contributions) or
any amounts from a
trustee-to-trustee transfer from one Medicare Advantage MSA to another Medicare Advantage MSA of the same account holder.
Enter the total distributions from all Medicare Advantage MSAs in 2006 that were used for your qualified medical expenses
(see page 1).
You cannot take a deduction on Schedule A (Form 1040) for any amount you include on line 13.
Medicare Advantage MSA distributions included in income (line 14) may be subject to an additional 50% tax unless one of the
following exceptions
applies.
Exceptions to the Additional 50% Tax
The additional 50% tax does not apply to distributions made on or after the date that the account holder—
If either of the exceptions applies to any of the distributions included on line 14, check the box on line 15a. Next, if either
of the
exceptions applies to all the distributions included on line 14, enter -0- on line 15b. Otherwise, complete the worksheet
below to figure the amount
of the additional 50% tax to enter on line 15b.
Section C—Long-Term Care (LTC) Insurance Contracts
See Filing Requirements for Section C on page 6.
The policyholder is the person who owns the proceeds of the LTC insurance contract, life insurance contract, or viatical settlement,
and also can
be the insured individual. The policyholder is required to report the income, even if payment is assigned to a third party
or parties. In the case of
a group contract, the certificate holder is considered to be the policyholder.
Qualified LTC Insurance Contract
A qualified LTC insurance contract is a contract issued:
-
After December 31, 1996, that meets the requirements of section 7702B, including the requirement that the insured must be
a chronically ill
individual (defined on this page), or
-
Before January 1, 1997, that met state law requirements for LTC insurance contracts at the time the contract was issued and
has not been
changed materially.
In general, amounts paid under a qualified LTC insurance contract are excluded from your income. However, if you receive per
diem payments (defined
below), the amount you can exclude is limited.
Per diem payments are payments of a fixed amount made on a periodic basis without regard to actual expenses incurred. Box
3 of Form 1099-LTC should
indicate whether payments were per diem payments.
Chronically Ill Individual
A chronically ill individual is someone who has been certified (at least annually) by a licensed health care practitioner
as—
-
Being unable to perform at least two activities of daily living (eating, toileting, transferring, bathing, dressing, and continence),
without substantial assistance from another individual, for at least 90 days, due to a loss of functional capacity, or
-
Requiring substantial supervision to protect the individual from threats to health and safety due to severe cognitive
impairment.
Accelerated Death Benefits
Generally, amounts paid as accelerated death benefits under a life insurance contract or under certain viatical settlements
are fully excludable
from your gross income if the insured is a terminally ill individual (defined below). Accelerated death benefits paid with
respect to an insured
individual who is chronically ill generally are excludable from your gross income to the same extent as they would be under
a qualified LTC insurance
contract.
Terminally Ill Individual
A terminally ill individual is any individual who has been certified by a physician as having an illness or physical condition
that can reasonably
be expected to result in death within 24 months.
Special rules apply in determining the taxable payments if other individuals received per diem payments under a qualified
LTC insurance contract or
as accelerated death benefits with respect to the insured listed on line 16a. See Multiple Payees on this page for details.
If you have more than one LTC period, you must separately calculate the taxable amount of the payments received during each
LTC period. To do this,
complete lines 20 through 28 on separate Sections C for each LTC period. Enter the total on line 28 from each separate Section
C on the Form 8853 that
you attach to your tax return. See the instructions for line 23 below for the LTC period.
Enter the total accelerated death benefits you received with respect to the insured listed on line 16a. These amounts generally
are shown in box 2
of Form 1099-LTC. Include only amounts you received while the insured was a chronically ill individual. Do not include amounts
you received while the
insured was a terminally ill individual. If the insured was redesignated from chronically ill to terminally ill in 2006, only
include on line 21
payments received before the insured was certified as terminally ill.
The number of days in your LTC period depends on which method you choose to define the LTC period. Generally, you can choose
either the
Contract Period method or the Equal Payment Rate method. However, special rules apply if other persons also received per diem
payments in 2006 under a qualified LTC insurance contract or as accelerated death benefits with respect to the insured listed
on line 16a. See
Multiple Payees on this page for details.
Under this method your LTC period is the same period as that used by the insurance company under the contract to compute the
benefits it pays you.
For example, if the insurance company computes your benefits on a daily basis, your LTC period is 1 day.
If you choose this method for defining the LTC period(s) and different LTC insurance contracts for the same insured use different
contract periods,
then all such LTC contracts must be treated as computing benefits on a daily basis.
Method 2—Equal Payment Rate
Under this method, your LTC period is the period during which the insurance company uses the same payment rate to compute
your benefits. For
example, you have two LTC periods if the insurance contract computes payments at a rate of $175 per day from March 1, 2006,
through May 31, 2006, and
then at a rate of $195 per day from June 1, 2006, through December 31, 2006. The first LTC period is 92 days (from March 1
through May 31) and the
second LTC period is 214 days (from June 1 through December 31).
You can choose this method even if you have more than one qualified LTC insurance contract covering the same period. For example,
you have one
insurance contract that pays $100 per day from March 1, 2006, through December 31, 2006, and you have a second insurance contract
that pays $1,500 per
month from March 1, 2006, through December 31, 2006. You have one LTC period because each payment rate does not vary during
the LTC period of March 1
through December 31. However, you have two LTC periods if the facts are the same except that the second insurance contract
did not begin making
payments until May 1, 2006. 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).
Qualified LTC services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative
services, and
maintenance or personal care services required to treat a chronically ill individual under a plan of care prescribed by a
licensed health care
practitioner.
Enter the reimbursements you received or expect to receive through insurance or otherwise for qualified LTC services provided
for the insured for
LTC periods in 2006. Box 3 of Form 1099-LTC should indicate whether the payments were made on a reimbursement basis.
Generally, do not include on line 26 any reimbursements for qualified LTC services you received under a contract issued before
August 1, 1996.
However, you must include reimbursements if the contract was exchanged or modified after July 31, 1996, to increase per diem
payments or
reimbursements.
If you checked “Yes” on lines 17 and 18 and the only payments you received were accelerated death benefits that were paid because the insured
was terminally ill, skip lines 19 through 27 and enter -0- on line 28.
In all other cases in which you checked “Yes” on line 17, attach a statement duplicating lines 20 through 28 of the form. This statement
should show the aggregate computation for all persons who received per diem payments under a qualified LTC insurance contract
or as accelerated death
benefits because the insured was chronically ill. Each person must use the same LTC period. If all the recipients of payments
do not agree on which
LTC period to use, the contract period method must be used.
After completing the statement, determine your share of the per diem limitation and any taxable payments. The per diem limitation
is allocated
first to the insured to the extent of the total payments the insured received. If the insured files a joint return and the
insured's spouse is one of
the policyholders, the per diem limitation is allocated first to them to the extent of the payments they both received. Any
remaining limitation is
allocated among the other policyholders pro rata based on the payments they received in 2006. The statement showing the aggregate
computation must be
attached to the Form 8853 for each person who received a payment.
Enter your share of the per diem limitation and the taxable payments on lines 27 and 28 of your individual Form 8853. Leave
lines 23 through 26
blank.
Mrs. Smith was chronically ill throughout 2006 and received 12 monthly payments on a per diem basis from a qualified LTC insurance
contract. She
was paid $2,000 per month ($24,000 total). Mrs. Smith incurred expenses for qualified LTC services of $100 per day ($36,500)
and was reimbursed for
one-half of those expenses ($18,250). She uses the equal payment rate method and therefore has a single benefit period for
2006 (January
1-December 31). Mrs. Smith completes Form 8853, lines 22 through 28, as follows.
The facts are the same as in Example 1, except Mrs. Smith's son, Sam, and daughter, Deborah, each also own a qualified LTC
insurance contract under
which Mrs. Smith is the insured. Neither Sam nor Deborah incurred any costs for qualified LTC services for Mrs. Smith in 2006.
From July 1, 2006,
through December 31, 2006, Sam received per diem payments of $2,700 per month ($16,200 total) and Deborah received per diem
payments of $1,800 per
month ($10,800 total). Mrs. Smith, Sam, and Deborah agree to use the equal payment rate method to determine their LTC periods.
There are two LTC periods. The first is 181 days (from January 1 through June 30) during which the per diem payments were
$2,000 per month. The
second is 184 days (from July 1 through December 31) during which the aggregate per diem payments were $6,500 per month ($2,000
under Mrs. Smith's
contract + $2,700 under Sam's contract + $1,800 under Deborah's contract).
An aggregate statement must be completed for the second LTC period and attached to Mrs. Smith's, Sam's, and Deborah's forms.
Step 1.
They complete a statement for Mrs. Smith for the first LTC period as follows.
Step 2.
They complete the aggregate statement for the second LTC period as follows.
Step 3.
They allocate the aggregate per diem limitation of $36,800 on line 27 among Mrs. Smith, Sam, and Deborah. Because
Mrs. Smith is the insured, the
per diem limitation is allocated first to her to the extent of the per diem payments she received during the second LTC period
($12,000). The
remaining per diem limitation of $24,800 is allocated between Sam and Deborah.
Allocation ratio to Sam:
60% of the remaining limitation ($14,880) is allocated to Sam because the $16,200 he received during the second LTC
period is 60% of the $27,000
received by both Sam and Deborah during the second LTC period.
Allocation ratio to Deborah:
40% of the remaining limitation ($9,920) is allocated to Deborah because the $10,800 she received during the second
LTC period is 40% of the
$27,000 received by both Sam and Deborah during the second LTC period.
Step 4.
Mrs. Smith, Sam, and Deborah each complete Form 8853 as follows.
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