 Income tax 2022-2023, Archer MSA deduction. Let's do some wealth preservation with some tax preparation. Most of this information comes from instructions for form 8853, Archer MSA, a long-term care insurance contracts, which you can find at the IRS website, irs.gov, irs.gov. Looking at our income tax formula, we're focused on line number two, adjustments to income. Remembering that the first half of the income tax formula is in essence an income statement, although a strange one, where we have income minus the equivalent of the expenses, those being the deductions getting down to the bottom line, the equivalent of net income. But here, taxable income, everything's upside down. It's all worthy derby, topsy-turvy, where we want the taxable income to be as low as possible, as opposed to normally, when we want the net income to be as high as possible. Remember that the adjustment to income can be thought of as a deduction or as a contra-income account, because it's decreasing the income line to get down to the subtotal of adjusted gross income, an important subtotal, because that's the one generally used to phase out things as income levels go up like deductions and credits. Also note that this line might be called above the line deductions, schedule one deductions. They also are not limited, or you don't have to clear, in other words, the hurdle of the standard deduction before you can take these above the line adjustments to income. All right, so we're focused on line number 10, adjustments to income from schedule one, when we look at schedule one. Part two, we're down here on the Archer. Swirling Archer. MSA, support accounting instruction by clicking the link below, giving you a free month membership to all of the content on our website, broken out by category, further broken out by course. Each course then organized in a logical, reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources, such as Excel practice problems, PDF files, and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. The deduction. Now this is generally kind of an older type of thing, so it still possibly could come up, but usually you're gonna have questions about the health savings account, which is up top. We talked a little bit about in prior presentations, but it's good to get kind of some context and the history on this as these kind of, these health type of things that they weave in and out of the tax code come into play because you're gonna see similar strategies as they're kind of trying to tweak these, these strategies with regards to the tax codes. So caution, after December 31st, 2007, contributions can't be made to an Archer medical savings account for you unless you were an active Archer MSA participant for any tax year ending before January 1st, 2008, or you became an active Archer MSA participant for a tax year ending after December 31st, 2007 because of coverage under a high deductible health plan, an HDHP of an Archer MSA participating employer. Now the high deductible health plans is another kind of key term that means that you gotta kind of understand when you're trying to figure out all the benefits related to health insurance and a high deductible means that you generally have to pay a higher deductible than when you get something, when a problem happens but it also means that the premiums are usually lower. So those are gonna be the cheaper type of plans which often sometimes are linked to some of the credits and whatnot because the idea would be that those would be the people that are buying those plans are the people that should most likely have access to credits and so it's all kind of tied together. So use form 8853 to report Archer MSA contributions including employer contributions, figure your Archer MSA deduction, report distributions from Archer MSA or Medicare Advantage MSAs, report taxable payments from long-term care LTC insurance contracts or report taxable accelerated death benefits from a life insurance policy. That's when we're gonna be using this form 8853. We're focused on the Archer here. Additional information, you can see publication 969, health savings accounts. That's the other big one that's gonna come up more often, oftentimes these days than the Archer and other tax favored health plans for more details on MSAs. So who must file? You must file form 8853 if any of the following applies. You or your employer made contributions for 2022 to your Archer MSA. You are filing a joint return and your spouse or their employer made contributions for 2022 to your spouse's Archer MSA. You or your spouse filing jointly required an interest in an Archer MSA or a Medicare Advantage MSA because of the death of the account holder, the death of account holder later. You or your spouse if filing jointly were like policy holder who received payments under LTC insurance contract or received any accelerated death benefits from a life insurance policy on or per diem or other periodic basis in 2022 to see instructions for section C later. And we won't go into all of this here but we're just gonna touch on it. You or your spouse if filing jointly received Archer MSA or Medicare Advantage MSA distributions in 2022. You could take a look at the instructions yourself for if any of these things apply you can dive into it in more detail. So eligible individual to be eligible for bull 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 an HDHP that's the high deductible health plan and have a new other health coverage except permitted coverage. So this is the often kind of the issues with these health plans cause remember when they're trying to adjust the laws for the health insurance the health insurance traditionally kind of went through the employers was kind of tied to the employers. So then you can ask situations well what if my employer doesn't provide health insurance or I work at a small business or I'm self-employed then you have a situation where you might not have the as beneficial of a plans and you possibly could have the high deductible health care plans which are typically gonna be the lower cost type of plans which is why you would think the lower income individuals would be purchasing the high deductible health plans although you might just also buy those cause you're when you're healthy you might be content with a high deductible plan as opposed to one that's gonna be there every time you take medical action because you're not doing a lot of medical action when you're younger versus when you're older or something like that but in any case those are the ones that are gonna be tied to some of the some of the benefit programs and the policies as we can see here. So you can see how just in general some of these concepts get kind of tied together health insurance used to go through the employer but now what if you're self-employed well then how are we gonna determine who should get a benefit from the plan well we can try to figure out a plan and categorize the plan into types of plans like the high deductible health plan which is usually the one that again is tied to some of these kind of benefit programs here such as we see here and possibly we'll see later when we get into like the health insurance marketplace has a similar kind of conceptual framework. Okay so you must be enrolled in Medicare and can't be another person's dependent you must be an eligible individual on the first day of a month to take an Archer MSA deduction for that month. So small employer, a small employer is generally an employer who had an average of 50 or fewer employees today is during either of the last two calendar quarters. So it gets messy when you start to kind of categorize companies as large or small or businesses as large or small because then you have to have this arbitrary line that's gonna be cut off and so now they're just picked 50 employees right so does it make you large when you hire that 50th or 50th employee it's kind of an arbitrary line but that's the kind of thing that happens again when we try to put these rules in place. So Archer MSA generally an Archer MSA as a medical savings account set up exclusively for paying qualified medical expenses of the account holder, qualified medical expenses. What are those? Generally qualified medical expenses for Archer MSA purposes are unreimbursed medical expenses that could otherwise be deducted on schedule A form 1040. So note this also gets messy because when you think about what qualifies as medical expenses which we will see when we get to the schedule A because sometimes you can deduct medical expenses on schedule A which are the itemized deductions although they're severely limited because of AGI you have to clear a hurdle of the AGI hurdle and so on but you can imagine people getting quite creative on what a medical expense is. My doctor said I can buy a jacuzzi or something like a whirlpool. It's not a jacuzzi, it's a health whirlpool or something you know and so you can imagine a lot of gray area with medical expense. My doctor said I needed to trip to Hawaii or something right and there's a bunch of cases law cases about these kind of arguments that you can dive into when more weird stuff happens when people are trying to categorize medical expenses. So see the instructions for schedule A form 1040 and publication 502, medical and dental expenses, qualified medical expenses are those incurred by the account holder or the account holder's spouse or dependents amounts paid for menstrual care products shall be treated as paid for medical care. See the instructions for line seven later you can't treat insurance premiums or qualified medical expenses unless the premiums are for LTC insurance, long-term care, healthcare continuation coverage or healthcare coverage while receiving unemployment compensation under federal or state law, high deductible health plan. So an HDHP so this is the key term and you'll hear it whenever you're looking into these health plans especially with regards to benefits with regards to health plans. For example, when you're looking at the health insurance marketplace and that kind of thing. So an HDHP high deductible health plan is a health plan that meets the following requirements. So minimum annual deductible if it's self coverage, 2004 50 family coverage, 4,950 maximum annual deductible, 3,700 for self only, for 7,400 for family and then maximum annual out of pocket expenses other than for premiums, 4,950 for the self only family coverage, 9,050. So other health coverage. If you have an Archer MSAU and your spouse if you have family coverage can't have any health coverage other than an HDHP because then if you had other coverage you would expect that you would use the other coverage generally. And so that means why would you have other coverage possibly because you have a job or your spouse has a job that has the ability to get coverage through their employer. So however, your spouse can have health coverage other than an HDHP if you aren't covered by that plan. So meaning when a spouse has coverage as an employee oftentimes they can cover the entire family possibly under the family plan but maybe they in a situation they don't they're only personally covered in which case you might still be able to get the HPHD. So exceptions, you can have additional insurance that provides benefits only for liabilities under the workers' compensation law 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. So see other health coverage in publication 969. So obviously when we're thinking about health coverage they kind of differentiate the terms of what is health coverage versus other things which you might think is kind of similar coverage meaning you have dental coverage is kind of its own special area of vision is its own special area which they kind of think of as separate from your standard medical coverage, right? Disability possibly and then when you have car insurance coverage and that kind of thing that could have a medical component to it but it's not really tied to your medical coverage typically and long-term care is still you think medical coverage but it's got its own kind of thing for its own purpose and it's like its own category. So in any case, see other health coverage in publication 969, health savings account and other tax-favored health plans for additional information about exceptions. So figuring your Archer MSA deduction the amount you can deduct for Archer MSA contribution is limited by the applicable portion of the HDHPs that's the high deductible health plan annual deductible line three and the compensation compensation from the employer maintaining the HDHP line four. So any employer or contributions made to your Archer MSA prevent you from making deductible contributions. Your employer contributions to an Archer MSA will be later. So 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 made later. So you gotta be careful to be in the regulations on your contributions. So you can't deduct any contributions you made after you became enrolled in Medicare. So Medicare once you're eligible for Medicare because you've reached the age to be eligible for Medicare then that's kind of like the health coverage, right? So oftentimes if before that time so now we've got a system where you kind of have like government healthcare or insurance for the most part Medicare after you're qualified you've reached the age to qualify for Medicare which means that you wouldn't really have the high deductible plan at that point which means that which is what you need to have in order to get access to the archers and all that kind of stuff. So that's where the Medicare kind of comes into play here. Also you can't deduct contributions if you are someone else's dependent. Employer contributions to an Archer MSA if an employer made contributions to your Archer MSA you aren't entitled to a deductible. If you and your spouse are covered under an HD HP high deductible health plan with family coverage and an employer made contributions to either of your Archer MSAs neither you nor your spouse is allowed to make deductible contributions to an Archer MSA because the employer's making the contributions. So and okay, so if you and your spouse both have an HD HP 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. So that's a general outline for more information you can take a look at the instructions for form 8853 Archer MSA and long-term care insurance contracts which you can find at the IRS website, irs.gov, irs.gov.