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My mother a retired teacher resides in a nursing home with Alzheimer's.  Medicaid says no. Tax preparer says yes. what is the law?

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Not likely. If you get any kind of social security from the state, it's not taxable. There are many people around here on fixed income and I've not yet heard of anyone on federal benefits having to pay taxes out of their already small checks. People are already hurting bad enough financially without taxes being hit up on an already mounding problem
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If she is in the NH on Medicaid, no taxes should be owed. It is always good to file, though. Some things, e.g. property tax exemptions, are easier when taxes are filed. If money was withheld, of course, it could be refunded. The state would have first claim on this, of course. I would worry if the withholding was more than Medicaid allowed to qualify. I would change the withholding, since all that money should be going to the nursing home.
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However, medicaid throws a different spin on it.
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It depends how she has set up pension at the get go. They would have asked her whether she wanted fed and state taxes taken out up front. Now if she has put them into her investment portfolio, she will have to pay taxes on ordinary and qualified dividends.
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The tax preparer my friends used before going into memory care told me, as their POA, that all the money they were paying into the memory care charges were tax deductible and since that amounts to more than their annual teacher pension and social security payments, I could notify those agencies not to withhold tax money any longer, since they get it all back anyway. I still haven't done that yet, but will for the next tax season. Minnesota taxes both those benefits so far, so I get two refund checks back. I will continue to file the taxes with the tax preparer since there is income from IRAs also and other investments that need to be accounted for. I want all the paperwork done correctly should any authority ever question my handling of their affairs.
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I agree with Jessie and Pam. The amount of her teacher's pension probably requires her to file, but the deduction for the nursing home costs results in no tax liability. This is for the federal income tax. State taxes vary depending on the state. Some states have no state income tax. Your state revenue department should be able to help you with the requirements for your state.
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She may not have any taxes to pay, but I have a feeling that she should still file. The taxable income line of the tax form should tell you if any taxes are owed. I don't know if your state taxes pensions. If they don't, they will tell you to report the money under non-taxable income.
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The IRS has rules about this so they are the people to check with or a CPA
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I agree some states have taxable income and others do not. Ask the IRS. Do not trust people who work for agencies without legal backgrounds or official status (like the IRS).
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It depends on the state you live in. Some states tax pension some do not.
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Tax prep is correct, she declares the income. The high cost of the nursing home will be deductible on her return and wipe out the taxable income. So she should file to get her withholding back.
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