Medicaid Eligible

[Tobey]

My elderly client is in a nursing home, his wife is still living in their home. They have spent down savings, and he has qualified for medicaid. His government pension is now paid to this wife, and she must remit $440 per month to the nursing home, an amount determined by medicaid. The balance stays with her for living expenses.

On their 2005 tax return, the high nursing home expenses drove schedule A, and the return zeroed out. However, I don't see this to be the case for 2006.

Wife has been advised (not by me) to stop federal withholdings from pension check. It looks to me that she will have a balance due for 2006, since Itemized schedule won't work. Bookkeeper in the nursing home told her that no one living there pays taxes.

Am I missing something here?

[Brian EA]

My elderly client is in a nursing home, his wife is still living in their home. They have spent down savings, and he has qualified for medicaid. His government pension is now paid to this wife, and she must remit $440 per month to the nursing home, an amount determined by medicaid. The balance stays with her for living expenses.

On their 2005 tax return, the high nursing home expenses drove schedule A, and the return zeroed out. However, I don't see this to be the case for 2006.

Wife has been advised (not by me) to stop federal withholdings from pension check. It looks to me that she will have a balance due for 2006, since Itemized schedule won't work. Bookkeeper in the nursing home told her that no one living there pays taxes.

Am I missing something here?

Since you did the 2005 return and you think that she will have a tax liability in 2006, go ahead and explain to the spouse what you think will happen. This way you will cover yourself for next year

[Gretel]

What I don't quite understand is why client will not have same high nursing home (medical) expenses as he had before. He is still living there, right?

[Bees Knees]

The reason is Medicaid has now kicked in to pay for some of the nursing home expenses. Prior to this, they paid 100% out of their savings. So their out of pocket expenses for nursing home costs has been reduced....Thus, the reason for Schedule A deductions being less.

Advise the client that now that Medicaid (insurance) is helping to pay the bill, their deductible costs no longer wipe out their income. Thus, some taxes will now be paid. If you put it into the perspective that it is better to pay a little tax with Medicaid help, than no tax with no Medicaid help, the client shouldn’t feel bad. As to the remark made by the nursing home that nobody their pays tax, the nursing home is not in the business of preparing tax returns. Many people in nursing homes don’t pay tax because the nursing home has sucked all of the financial life out of the taxpayer so that there is nothing left to tax.

[Tobey]

medicaid eligible -thanks

Yes, your responses support my understanding of the situation fully. Savings are gone, medicare pays most of the bills, wife kicks in part - maybe 5% of the cost, and everything is hunky-dory. I just couldn't see where the wife would have no tax liability in 2006. Thanks for your input. Nursing home administrators should administer nursing homes, not dabble in taxes!