1999 Instructions for Form 8853

Medical Savings Accounts and
Long-Term Care Insurance Contracts

Section references are to the Internal Revenue Code unless otherwise noted.

Paperwork Reduction Act Notice.

We ask for the information on this form to carry out the Internal Revenue laws of the United States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax.

You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section 6103.

The time needed to complete and file this form will vary depending on individual circumstances. The estimated average time is:

Recordkeeping	1 hr., 19 min.
Learning about the law or the form	34 min.
Preparing the form	1 hr., 30 min.
Copying, assembling, and sending the form to the IRS	20 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be happy to hear from you. You can write to the Tax Forms Committee, Western Area Distribution Center, Rancho Cordova, CA 95743-0001. DO NOT send the form to this address. Instead, see Where Do You File? in the Form 1040 instructions.

General Instructions

A Change To Note

Use new Section B to report distributions from a Medicare+Choice medical savings account (MSA).

Purpose of Form

Use Form 8853 to:

• Report information about MSAs (other than Medicare+Choice MSAs) established in 1999;
• Report MSA contributions;
• Figure your MSA deduction;
• Report distributions from MSAs or Medicare+Choice MSAs;
• Report taxable payments from long-term care (LTC) insurance contracts; or
• Report taxable accelerated death benefits from a life insurance policy.

Additional information. See Pub. 969, Medical Savings Accounts, for more details on MSAs.

Who Must File

You MUST file Form 8853 if any of the following apply.

• You (or your spouse, if married filing jointly) established a new MSA for 1999 (even if the contributions to the MSA were made by an employer).
• An employer or you (or your spouse, if married filing jointly) made contributions for 1999 to your MSA (or your spouse's MSA, if married filing jointly).
• You (or your spouse, if married filing jointly) received MSA or Medicare+Choice MSA distributions in 1999.
• You acquired an interest in an MSA or a Medicare+Choice MSA because of the death of the account holder. See Death of Account Holder on page 4 or 5 for details.
• You (or your spouse, if married filing jointly) were a policyholder who received payments under an LTC insurance contract, or received any accelerated death benefits from a life insurance policy, on a per diem or other periodic basis, in 1999. See the instructions for Section C, beginning on page 5.

Specific Instructions

Name and Social Security Number (SSN).   Enter your name(s) and SSN as shown on your tax return. If married filing jointly and both you and your spouse each have an MSA or each have a Medicare+Choice MSA, enter the SSN shown first on your tax return.

Section A - Medical Savings Accounts (MSAs)

Eligible Individual

To be eligible for an MSA, you must be an employee of a small employer or be self-employed. You must also have a high deductible health plan (HDHP), and have no other health insurance coverage except permitted coverage. You must be an eligible individual on the first day of a month to take an MSA deduction for that month.

Small Employer

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.

Medical Savings Account

An MSA is an account set up exclusively for paying the qualified medical expenses of the account holder or the account holder's spouse or dependent(s) in conjunction with an HDHP.

Qualified Medical Expenses

Generally, qualified medical expenses for MSA purposes are unreimbursed medical expenses that could otherwise be deducted on Schedule A (Form 1040). See the Schedule A (Form 1040) instructions and Pub. 502, Medical and Dental Expenses. 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 (HDHP)

An HDHP is a health plan that meets the following requirements:

	Self-only coverage	Family coverage
Minimum annual deductible	$1,550	$3,050
Maximum annual deductible	$2,300	$4,600
Maximum annual out-of-pocket expenses	$3,050	$5,600

Other Health Insurance

If you have an MSA, you (and your spouse, if you have family coverage) may not have any other health insurance coverage (other than an HDHP).

Exception.   You may have additional insurance that provides benefits only for:

1. Accidents,
2. Disability,
3. Dental care,
4. Vision care,
5. Long-term care,
6. Liabilities under workers' compensation laws, tort liabilities, or liabilities arising from the ownership or use of property,
7. A specific disease or illness, or
8. A fixed amount per day (or other period) of hospitalization.

Disabled

An individual is generally 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.

Part I - General Information

Complete this part if you (or your spouse, if married filing jointly) established a new MSA for 1999, even if the contributions to the MSA were made by an employer.

Lines 1a and 2a

Check Yes if you or your spouse established a new MSA for 1999, including an MSA established for 1999 from January 1, 2000, through April 17, 2000.

Lines 1b and 2b

Previously Uninsured Account Holder

If an 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, the account holder is considered previously uninsured. In addition, for the account holder to be considered previously uninsured, the HDHP coverage must not have begun before July 1, 1996.

If an account holder has 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, the account holder is considered previously uninsured. In addition, for the account holder to be considered previously uninsured, the HDHP coverage must not have begun before July 1, 1996.

In determining whether an account holder is previously uninsured, disregard any health insurance that is permitted in addition to the HDHP. See Other Health Insurance on page 1.

Line 1c

If you were covered by an HDHP with self-only coverage and an HDHP with family coverage, indicate which plan was in effect longer during the year.

Line 2c

If you are filing a joint return and your spouse was covered by an HDHP with self-only coverage and an HDHP with family coverage, indicate which plan was in effect longer during the year.

Part II - MSA Contributions and Deductions

Use Part II to figure:

1. Your MSA deduction (and, if applicable, any excess contributions you made); and
2. Any excess contributions made by an employer. See Excess Employer Contributions on page 3.

Figuring Your MSA Deduction

The amount you can deduct for MSA contributions is limited by:

1. The applicable portion of the policy's annual deductible (line 5), and
2. Your compensation from the employer maintaining the HDHP (line 6).

However, employer contributions to an MSA may prevent you from making deductible contributions. In addition, 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 for details).

Employer Contributions to an MSA

The following rules apply for employer contributions.

1. If an employer made contributions to your MSA, you are not entitled to a deduction.
2. If you and your spouse are covered under an HDHP with family coverage, employer contributions to either of your MSAs prevent either spouse from making deductible contributions to an MSA.
3. If you and your spouse each have MSAs with self-only coverage and one of you received employer contributions to his or her MSA, the other is allowed to make deductible contributions to an MSA.

The following examples illustrate these rules:

Example 1. Your employer maintains an HDHP with family coverage. Your employer does not contribute to your MSA. However, your spouse (who is covered under the HDHP maintained by your employer) has an employer that contributes to his or her MSA. You are not allowed to deduct contributions to your MSA because of the employer contribution to your spouse's MSA.

Example 2. Your employer maintains an HDHP with self-only coverage. Your spouse's employer maintains an HDHP with self-only coverage. Your employer contributes to your MSA. No employer contributions are made to your spouse's MSA. Your spouse may deduct contributions to his or her MSA.

How To Complete Part II

Complete lines 3a through 7 as instructed on the form unless one of the following applies.

1. If employer contributions to an MSA prevent you from taking a deduction for amounts you contributed to your MSA, complete Part II as follows:
   1. Complete lines 3a through 4.
   2. Skip lines 5 and 6.
   3. Enter -0- on line 7.
   4. If line 4 is more than zero, see Excess Contributions You Make and Excess Employer Contributions on page 3.
2. If you and your spouse have more than one MSA, complete lines 3a through 7 as follows:
   • If either spouse has an HDHP with family coverage, complete lines 3a through 7 using the Family Coverage rules in the instructions for line 5.
   • If both spouses have HDHPs with self-only coverage, check the box in the heading for Part II. Complete a separate Form 8853, Section A, Part II, for each spouse. Write statement across the top, fill in the name and SSN and complete Part II. Then, add the totals for lines 3b, 4, and 7 from the two separate 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 3a, 5, and 6 of the controlling Form 8853. Attach the two statement Forms 8853 to the controlling Form 8853.

Lines 3a and 3b

Employer Contributions

Employer contributions include any amount an employer contributes to any MSA for you or your spouse for 1999. These contributions should be shown in box 13 of Form W-2 with code R. See Excess Employer Contributions on page 3 for details.

Line 4

Do not include amounts rolled over from another MSA. See Rollovers on page 4.

Line 5 Limitation Chart and Line 5 Limitation Worksheet

Line 5

Use the worksheet on page 3 to figure your limitation.

Instructions for Line 5 Limitation Worksheet

Go through the chart for each month of 1999. Enter the result on the corresponding line next to the month on the worksheet.

If your eligibility and coverage did not change from one month to the next, enter the same number you entered for the previous month.

More than one HDHP.   If you (and your spouse, if married filing jointly) had more than one HDHP on the first of the month and one of the plans has family coverage, use the Family Coverage rules below and disregard any plans with self-only coverage.

Self-Only Coverage.   Enter the annual deductible, which must be at least $1,550 but not more than $2,300. Enter 65% (.65) of the annual deductible on the worksheet.

Family Coverage.   Enter the annual deductible, which must be at least $3,050 but not more than $4,600. Enter 75% (.75) of the annual deductible on the worksheet. If married filing separately, enter only 37.5% (.375) of the annual deductible on the worksheet. However, if you and your spouse agree to divide the 75% of the annual deductible in a different manner, enter your share on the worksheet.

Line 6

Compensation

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 profit, 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. Generally, this amount is 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.

Line 7

If you (or your employer) contributed more to your MSA than is allowable, you may have to pay a tax on excess contributions. Figure your excess contributions using the instructions below. See Form 5329, Additional Taxes Attributable to IRAs, Other Qualified Retirement Plans, Annuities, Modified Endowment Contracts, and MSAs, to figure the additional tax.

Excess Contributions You Make

To figure your excess contributions, subtract your deductible contributions limit (line 7) from your actual contributions (line 4). Do not include rollovers.

However, you can withdraw some or all of your excess contributions for 1999 and they will not be taxed as an excess contribution if:

• You make the withdrawal by the due date, including extensions, of your 1999 tax return,
• You do not claim a deduction for the amount of the withdrawn contribution, and
• You also withdraw any income earned on the withdrawn contributions and include the earnings as other income on your tax return for the year you withdraw the contributions and earnings.

Excess Employer Contributions

For each employer, figure the excess employer contributions as the excess, if any, of the employer's contributions over the smaller of (a) your limitation on line 5 or (b) your compensation from the employer. 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 1999 and they will not be taxed as an excess contribution if:

• You make the withdrawal by the due date, including extensions, of your 1999 tax return,
• You do not claim an exclusion from income for the amount of the withdrawn contribution, and
• You also withdraw any income earned on the withdrawn contributions and include the earnings as other income on your tax return for the year in which you withdraw the contributions and earnings.

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