Medicaid recipient but will owe federal tax due to pension-how to pay

[lynnann]

Mother is in a nursing home and on Medicaid. Medicaid requires that the total gross amount of her income except for $125 personal needs allowance be paid to nursing home.

Medicaid advised  she had to stop having federal taxes taken out of his social security and pension to meet the spend down obligation. Since only 92.5% of what she pays can be deducted using schedule A,  when she files, she will owe taxes on the amount that can't be deducted which is about $5000

She will not have enough assets to pay the tax obligation. What should she do?

[xmasbaby0]

Sounds like you are pretty confused about a few things.    We may be able to help if you clarify some things.

  First---"....only 92.5% of what she pays can be deducted....."   Medical expenses are an itemized deduction-----they have no effect at all on your tax due or refund unless you also have enough other itemized deductions to exceed your standard deduction.   The amount of medical expenses that go on Schedule A is 7.5% of your AGI from line 12 of your Form 1040.   But if that does not exceed your standard deduction, you need other itemized deductions such as mortgage interest, property tax, etc.   What other itemized deductions do you intend to enter?

"Medicaid advised she had to stop having federal taxes taken out of his Social Security and pension..."   

First you refer to this being about your mom, and then use the word "his."   Whose Social Security benefits and whose pension are you referring to?

It is possible to stop having tax withheld from SS----contact SS in order to do that.    Usually Medicaid recipients who are receiving Social Security benefits are required to assign their full SS benefit to the nursing home---and they get to keep just a small monthly amount for their own personal expenses.  That may vary by state, but it is typically about $50/month.  The rest of the SS goes to the nursing home.   Have you talked with the business office of the nursing home to get clarity?

"....the spend down obligation..."   Has Medicaid spend down been explained to you by an elder attorney or someone with solid knowledge of how that works?   What other assets does your mom have?  Does she still own a house, have a retirement or investment account, etc etc etc.?

"....she will owe taxes on the amount that can't be deducted which is about $5000.."   Where are you getting that information from?   

[Mike9241]

Medicaid nursing home coverage varies by state so it probably best to discuss with a person specializing in elder-care in her state. 

however with $5000 in taxable income (?) the federal tax should be about $500. at most 85% of her social security would be taxed. perhaps more is being withheld than needed. 

to POSSIBLY provide additional help we would need more information about her income and deductions. This is a public forum. 

[rjs]

Almost everything that as been said above about the itemized deduction for medical expenses is wrong. Let me try to clear up the confusion.

The amount that can actually be deducted is the amount of unreimbursed medical expenses in excess of 7.5% of AGI. For example, suppose AGI is $50,000 and total unreimbursed medical expenses are $10,000. 7.5% of $50,000 is $3,750, so the deduction is $10,000 - $3,750, which is $6,250. If total unreimbursed medical expenses are $3,750 or less, there is no deduction.

The 7.5% does NOT apply to the amount of medical expenses, it applies to AGI. And the deduction is NOT 7.5% of AGI, it's the amount by which the medical expenses exceed 7.5% of AGI.

As xmasbaby0 said, the deduction does not reduce the tax unless total itemized deductions are more than the standard deduction.

When you enter medical expenses in TurboTax, or any tax software, you enter the full unreimbursed amount. The 7.5% of AGI will be subtracted on Schedule A.

Some states have different rules for deducting medical expenses on the state tax return.

[xmasbaby0]

@rjs Thanks---I did a poor job of explaining the 7.5% ----glad you caught it and did better!