Posts Tagged ‘Social Security’

You have that uneasy feeling that you ought to be doing something . . . just not sure what. Perhaps Mom or Dad has been exhibiting some troubling health symptoms. As the oldest/only/closest child you know that it will be up to you to come up with a solution.

You’ve also been reading the news.

Once the 2012 elections are over and a new Congress is seated, Medicaid rules may likely tighten. It really will not matter which party comes out on top: It will become ever more difficult to qualify for this program as Congress authorizes and directs the states to revise rules.

The Forecast

Social Security, Medicare, and Medicaid are in trouble. Across the political spectrum, from secretaries Geithner and Sebelius to Mitt Romney and Paul Ryan, the alarm is being raised. The only thing the politicos disagree on is what to do. On April 24 the trustees of the Medicare program released their annual report with 3 different sets of numbers (“bleak, bleaker, and bleakest” according to Medscape Medical News).

So desperate is the government getting for money that cuts in Medicare reimbursements to nursing homes, aggravated by Medicaid cuts, will likely cause as much as 35% of nursing homes to reduce staffing – and North Carolina is the third hardest hit state (according to a study by the Alliance for Quality Nursing Home Care).

The financial crisis has set the stage for the problems, but all social programs directed to older population will feel intense pressure from the Boomers “coming of age” and having the nerve to live longer.

Some states are squeezing now. An excellent Wall Street Journal describes this in some detail.

Although the numbers discussed show the programs becoming insolvent at current levels within 10 to 15 years, do not be lulled into complacency:  Action will need to be taken very soon to begin to turn the tide.

While I have real misgivings about the way long term Medicaid is currently designed and believe that there are rational approaches to saving huge amounts, the current program and rules are all I have to use for the benefit of my clients.

So . . . What To Do?

Plan early. When the rules change, they almost always change prospectively, not retroactively. In other words, harsher rules will likely apply to planning strategies implemented after the new rules become effective.

Failure to adequately plan early runs not only the risk of being hit with higher rules hurdles, but leaving a family with fewer options if a parent’s health suddenly declines. There is a medical analogy here: The longer a bothersome problem is left untreated, the more intensive will be the final remedy (if one is even available).

So where does planning start?

Get educated!

First, become familiar with Medicaid. There are all sorts of resources online. I have written a “Plain English” guide to North Carolina Nursing Home Medicaid that is available online (fill out the online request form and I’ll even send you a paper copy – which also contains a valuable planning offer).

Learn about trusts. I have a number of informative articles posted on the Mason Law, PC website. There are also hundreds of articles on the web.

If you’re looking for something more comprehensive with planning guides and forms, tryElderLawUniversity. It is not free, but it is not too expensive either. Fair disclosure:ElderLawUniversityis my brainchild.

In May the Friends of the Asheboro Library and I will be hosting a series of three seminars that might get you started on planning. Click HERE for more details on these three seminars.

Get qualified help. Many of the news outlet articles I mentioned above urge people to get the help of a qualified elder law attorney. I know of at least one! On the other hand, there are other sources to find qualified help.

A good elder law attorney need not be certified, but a certified elder law attorney will be good. Check the North Carolina Board of Legal Specialization for board certified elder law attorneys.

The National Academy of Elder Law Attorneys (NAELA) is an organization representing almost all elder law attorneys in the US. The NAELA website has a geographically searchable directory. In fact, if an attorney is not a member of NAELA, he or she likely is not serious about practicing in the elder law specialty.

To recap:

• Don’t dither!
• Get educated!
• Get help!

You now realize Mom has to file a tax return because her gross income exceeds $10,950.  If ½ her Social Security benefits PLUS her income from all other sources is LESS than $25,000 (call it her “Combined Income”), but her non-Social Security income from all sources is more than $10,950, then she will have to file a tax return, although Social Security benefits will be untouched.  However, if her Combined Income (½ her Social Security benefits PLUS her income from all other sources) is greater than $25,000, then Social Security benefits are going to be taxed.

The question is:  If her Social Security is going to be taxed, just how much?

As a rule of thumb, if her Combined Income is between $25,000 and $34,000, then as much as 50% of the Social Security benefits will be considered taxable.  If her Combined Income is more than $34,000, then as much as 85% of her Social Security benefits will be considered taxable.

NO! That does not mean that she must pay 50% or 85% of her benefits as taxes . . . it means that up to 50% or 85% of her benefits will be treated like taxable income from other sources.

To figure out the amount of benefits taxable, fill out the Social Security Benefits Worksheet that comes in the instruction package for Form 1040.

Example:  Let’s say Mom worked constantly at Burt’s FastBurger and her W-2 shows gross income of $23,000. Her 1099-INTs show interest income of $3,000.  Her 1099-SSA shows Social Security benefits of $19,200.  Half her Social Security benefits is $9,600.  When added to her other income ($26,000) the sum is $35,600 . . . which is, of course, more than $25,000.  All that means is some of her Social Security will be taxed.

In fact, I filled out a worksheet for Mom and you can download it here (you can also mess around with it yourself). As you can see, $5,860 of Mom’s Social Security benefits are taxable.

That means that Mom’s gross income for the year will be:  $23,000 (Burt’s) + $3,000 (Interest on the CDs) + $5,860 (Taxable part of Social Security)  =  $31,860.

Mom (who is 70) is on Social Security and worked part time at Burt’s FastBurgers to earn a little extra and socialize a bit more than she might otherwise be able to (Dad died a few years ago and she likes to get out).

Of course, sometime in January she got a W-2 from Burt’s as well as a couple of 1099s with interest income on a number of CDs.  Being the good boy/girl that you always have been, you are gathering up a 1040, the 1099-SSA, the W-2, and other forms and getting ready to figure out Mom’s taxes.  But wait! Do you REALLY need to file?

You may not need to. If Mom’s “gross income” is less than $10,950 ($9,500 if she was under 65 . . . but she’s not) you might be able to find something else to do other than fill out Mom’s tax returns. By the way, had Mom been married, and both she and Hubby were over 65 and they were filing jointly, the magic “file/no file” number would have been $21,300, and if just one of them was over 65, the number would have been $20,150. But back to single Mom over 65: $10,950 is the magic number. The question is: How does the Social Security she received count?

Look at the 1099’s (except from Social Security) and the W-2 from Burt’s and add them up. Let’s say the Burt’s W-2 shows $6,500 gross income paid, and the 1099-INT forms from the banks show interest income on the CDs of $3,000. Mom’s total gross income from sources other than Social Security is $9,500.

Figure Out How Much The Social Security Might Count

Now take a look at Mom’s 1099-SSA. Let’s say Social Security paid Mom total benefits of $19,200 during the year. Divide that by half. That equals $9,600.

Add half the Social Security paid to the total of other income received by Mom. $9,600 + $9,500 = $19,100.

If half the Social Security benefits and the total of all other income is $25,000 or less, then none of the Social Security counts. In Mom’s case the number was $19,100 . . . which we all realize is less than $25,000. Therefore, Social Security will not enter the tax picture.

That Leaves Us With . . .

Mom had non-Social Security earnings of $9,500. You are able immediately to surmise that Mom’s “gross income” is less than $10,950. Stuff the W-2 and the 1099s back in the envelope to give back to Mom. Sweep the blank tax return forms into the trash. Go watch Dancing With the Stars . . . you’re off the hook!

What if Mom’s income from Burt’s and the CDs is $12,000, but when added to half her Social Security benefits is less than $25,000?  Or what if half of Mom’s Social Security and all other income exceeds $25,000? Turn off the TV, and read the next article. We have a little work to do.