1099-R and Medicaid

[Gretel]

I never did a tax return for a client in the nursing home being on Medicaid and have no clue how to answer my client's question.

Medicaid insists on getting gross amount of retirement (1099-R), which is taxable under IRS/State rules. So, senior has to pay taxes from money senior doesn't have any more. I cannot see IRS rules change just because Medicaid gets the funds. Am I wrong?

Her 1099-R income even makes her SS benefits taxable.

[TaxmannEA]

If your client is in a nursing home on Medicaid, I would think that the medical deduction on Sch A would include all of their pension recieved as that would be going to reimburse expenses. Hopefully that coupled with the exemption should pretty well reduce any tax.

[Jiggers]

On Medicaid?

I never did a tax return for a client in the nursing home being on Medicaid and have no clue how to answer my client's question.

Medicaid insists on getting gross amount of retirement (1099-R), which is taxable under IRS/State rules. So, senior has to pay taxes from money senior doesn't have any more. I cannot see IRS rules change just because Medicaid gets the funds. Am I wrong?

Her 1099-R income even makes her SS benefits taxable.

How can she be on Medicaid with that amount of income?

Is your client paying anything for the nursing home?

[Gretel]

How can she be on Medicaid with that amount of income?

Is your client paying anything for the nursing home?

Good question. Roughly $30,000 income but Nursing Home costs $40,000, so she is paying $30,000.

[Gretel]

If your client is in a nursing home on Medicaid, I would think that the medical deduction on Sch A would include all of their pension recieved as that would be going to reimburse expenses. Hopefully that coupled with the exemption should pretty well reduce any tax.

Duh, I think you are right. Don't know why this did not occur to me. Of course, it is a medical reason for her to be there. She used to live in assisted living before, which she just could afford.

[JG EA]

Gretel, I'm sure Medicaid "takes" the pension like they take SS income. It is paid directly to the nursing home. And if a tax return in needed it is correspondingly a medical deduction. They allow up to $2000 in some states of private money to get the hair done, etc. So, if any taxes are due you could have you client withdraw it from the nursing home, they usually hold in trust.

[FEDUKE404]

Much confusion

I'm not sure how it works after all this dust has settled.

Is she still receiving Form 1099-R retirement income (then how does she ever get Medicaid in the first place?) or is Medicaid paying for her nursing home (then there goes that Schedule A deduction!)?

I assume she is also receiving some Social Security benefits???

And (at least a small) gorilla in the room: Do all of her nursing home expenses clearly fall into the "medical" category in the first place?

To complicate things further, it's been my observation that many retirement/assisted living facilities will not house Medicaid residents.

Good luck - keep us posted!

FE

[Gretel]

I'm not sure how it works after all this dust has settled.

Is she still receiving Form 1099-R retirement income (then how does she ever get Medicaid in the first place?) or is Medicaid paying for her nursing home (then there goes that Schedule A deduction!)?

I assume she is also receiving some Social Security benefits???

And (at least a small) gorilla in the room: Do all of her nursing home expenses clearly fall into the "medical" category in the first place?

To complicate things further, it's been my observation that many retirement/assisted living facilities will not house Medicaid residents.
FE

Thanks for all the thoughts. Here are some more details.

Client used to live in assisted living facility until she ran out of money and, at the same time, her condition got worse. Then she moved into nursing home (totally separate facility in another town).

Medicaid picks up what cannot be paid from 1099-R income plus SS benefits. Since there is clearly a medical need for her being in Nursing Home I have no doubt that all expenses paid from her funds qualify as medical expenses and since only part of SS is taxable she will have negative income after Sch. A deduction.

If retirement company pays directly to Nursing home I am not sure if they still consider payment on her behalf as payment to her and if she still will be getting a 1099-R. We will see in 2011. I just wanted to have a good answer for her daughter.

However, it also occurred to me that this client used to qualify for the "Elderly Homeowners Credit" in MT, which is also available to seniors paying rent. While living in the assisted living facility, part of her payment was considered rent. Now, being in a Nursing Home (still single occupancy) I don't think any part of her payment qualifies as rent unless Nursing home would give her a receipt as such. But I am not sure.