My mom is on Medicaid and the CPA just finished her taxes. I thought I would get professional help this year. My mother paid virtually all of her income to the nursing home as mandated by the state. She was left with $45 a month as spending money. In addition her assets had to be under $2000. The federal tax preparation showed that she owed almost $500 in federal taxes. Her medical expenses on schedule A are limited to 92.5% of what they actually were. This is what caused the problem. About $5000 of what she paid to the nursing home were not allowed to be written off against her income. She never received this money, she paid it to the nursing home, But yet she is expected to pay taxes on money that she never received and doesn’t have. Has anyone else ever encountered this problem? What can I do? She has the money from the stimulus payment that she can pay the tax But going forward she will not have enough money to pay it in future years. Her income is considered high but it is government pension and the Medicaid office takes that into consideration… She pays everything that she receives, except for $45 a month, to the Nursing home. I have talk to the state Medicaid representative, her Supervisor, The CPA, the business manager at the nursing home, and the social worker at the nursing home. They all say they have never heard of this before but I have looked at the tax papers and Everything seems in order. How can a person on Medicaid who pays virtually all their money to the nursing home be expected to come up with $500 that they don’t have ( except for the stimulus) to pay federal taxes? I have searched for some kind of exclusion but I have come up with nothing. Any help would be appreciated.
If all of her income is currently going to the Nursing Home and she is on medicaid there will be no tax recovery unless she ends life with assets of say a home or some such. I would not worry about her taxes, and certain YOU are not liable to pay them. The feds aren't going to lock your Mom in jail. They then would have to pay for her care themselves! If you are her POA you can say that your mother is currently in LTC, is on medicaid, and has no income other than 45.00 a month. She is therefore "destitute " and unable to pay her taxes.
What advice have you got from the CPA?
The 2017 Republican changes to the tax code increases taxes for people with high medical expenses. In the years up to the Trump era, it was possible to deduct up to 92.5% of nursing home-related expenses from one's income AND claim a personal exemption (around $4000 per individual). The Republicans increased the standard deduction but eliminated the personal exemption, so elders who are in nursing homes or who have high medical expenses now have to pay tax on their PNAs.
It does go on from there but some people may find my tax law tirade too political.
The tax law on itemizing medical deductions is what it is. Ask the tax guy about doing an estimated payment in January with the rest of the stimulus. If you overpay, any refund can be applied to the following year rather than taken during the current year.
So if you have or can set up a login for her, you may be able to do the same.
You may need to let Medicaid know that the checks will be a little smaller. I'd suggest setting the withholding for 2021 at $100 a month, then apply the refund to 2022 and lower the withholding for 2022 to maybe $50 a month for January.
I am payee for my disabled nephew who receives my sister's pension. I contact a place in PA where government pensions are handle. At least for this part of the country. I would first contact Moms caseworker and tell them that you are going to have to make a tax deduction. They are going to have to adjust what they give the NH accordingly because what they contribute is based on what Mom contributes. I see problem in using Moms stimulus check to pay the $500 but would check that out with the caseworker.