Income tax for nursing home resident on Medicaid?
January 19, 2011 1:16 PM   Subscribe

Is a person exempt from income tax if he is living in a nursing home and on Medicaid?

My father-in-law went into a nursing home in the summer of 2010, and after spending down his resources, qualified for Medicaid, which pays for the care now.

Since this all just happened a few months ago, we're pretty new to this whole scenario - Medicare, Medicaid, nursing home, etc. We had nothing to do with his financial affairs before he became ill and had to go into the nursing home, either, so it's new for us on that front, too. It's all pretty confusing, so any guidance we can get would be appreciated!

He receives a pension from his previous job. His social security income goes directly to the nursing home, but the pension income does not. His pension income goes by direct deposit into his bank account, and my husband writes a check on those funds to the nursing home. (Hubby has power of attorney.) Everything is calculated out so that all of his pension income is supposed to the nursing home.

Now, in January, Hubby discovered the pension checks were smaller than expected. Turns out the taxes have gone up. Hubby contacted the nursing home (which is still expecting the same size check from us), who told him that as a person on Medicaid, Father-in-Law is exempt from paying taxes, and we need to talk to the pension folks to get them to stop withholding taxes.

So my basic question is, is this correct? Is he exempt from having taxes withheld off his pension check?
posted by leticia to Law & Government (13 answers total)
He can likely file an amended tax return correcting, via refund, any over withheld funds and and find out the proper form to file with the pension provider to exempt him from any withholding going forward. He sounds as if his NET income is below the taxable level even without expoenses. Go to an IRS help line perhaps?
posted by Freedomboy at 1:26 PM on January 19, 2011

You need the advice of a tax attorney. There are too many possible variables here. Most likely, his pension is taxable. That is why they were withholding from it. It is very likely that, by the time you account for deductions and exemptions, his tax liability will be zero and he will get a refund of the withheld amounts. Without knowing the specifics of his pension and the details of his tax liabilities, it is impossible to address this issue. Do you have access to his tax returns for last year?
posted by Old Geezer at 1:28 PM on January 19, 2011

You need the advice of a tax attorney. There are too many possible variables here.
posted by dougrayrankin at 1:31 PM on January 19, 2011

Response by poster: Old Geezer: Since we're so new to this situation, I couldn't even tell you if he *filed* his taxes last year.

I'm glad I asked here first. I don't even know what I need to know! :)
posted by leticia at 1:33 PM on January 19, 2011

It might not even need to be a tax attorney. A good CPA with elder issues experience may also be able to help you. If you have a Community Agency on Aging (google this plus your town name) they may be able to direct you to CPAs who specialize in this area.
posted by anastasiav at 1:56 PM on January 19, 2011

When you talk to an accountant, he will want to see the 1099 form. The pension administrator will be sending him a form right about now, and that will disclose what his pension income was for 2010.

Then you and/or he can calculate:

pension income
- $10,700 (probably - regular exemption plus elderly exemption)
- $5,700 standard deduction
= taxable income
of which the first $16,750 is taxed at 10%.

The accountant will have to address whether and how his nursing home payments can be deducted. If that becomes necessary.
posted by yclipse at 3:55 PM on January 19, 2011

Nursing home payments can be deducted, to some extent (there's a formula for how much is medical care and assistance, which is deductible to some extent, and how much is food and rent and utilities, which are not deductible).

Definitely see an accountant. But it probably doesn't hurt to change the withholding, because it's unlikely he'll owe very much in taxes given what you've said.
posted by Sidhedevil at 4:37 PM on January 19, 2011

One thing you have not stated is whether he is legally competent. If he is (and will cooperate) have him grant you or your husband power of attorney. This will allow you to contact the pension administrator, Social Security and the IRS. The pension administrator can tell you whether all or part of the pension is taxable, the basis of the withholding and what steps are needed to change it if that is even possible. Socially Security can tell you if they are withholding taxes as well. You may want to adjust this too. Lastly, IRS can refer you to the pamphlets that better explain what nursing home payments are deductible, whether there are any special things to do and how to become his attorney-in-fact for IRS purposes. Again, I suggest the help of a tax attorney even though you may be able to take over the issue in the following years. An experienced guide is always good during your first trip through the forest.
posted by Old Geezer at 5:46 PM on January 19, 2011

IRS employee here. As others have said, individual circumstances can vary widely so it's best to run it by a professional if you feel unsure in the ways of tax. To answer the question more directly, there's no law that says: IF-->Medicaid, THEN-->exempt from all federal income tax. Realistically speaking though, if a person's income is low enough to qualify for Medicaid, their federal income tax is likely going to be in the low to nonexistent range. But every situation is different, of course.

On a side note, Old Geezer's comment about the power of attorney is spot-on. If you/your spouse feel like you may be dealing with your father-in-law's taxes on an ongoing basis from this point forward, a power of attorney would be a very handy thing to have. Form 2848 is our Power of Attorney form for IRS purposes, and can be downloaded here: (Form) (Instructions)
posted by texano at 9:56 PM on January 19, 2011

Response by poster: Thanks for the comments everyone!

texano: Thanks so much for the links, and especially for the direct answer to the "IF-->Medicaid, THEN-->exempt" question. That is a big first step toward clearing up the fog for us in dealing with this issue.

Another question for you though... Old Geezer missed the fact that my husband does have power of attorney. (Father-in-Law is competent, but more than happy to have someone else manage his affairs while he deals with some serious health issues.) But your answer, texano, raises a corollary question for me that you might be able to answer:

I haven't looked at the PoA in a few months, so I don't remember offhand if it makes any specific mention of taxes or related transactions, but it is a pretty comprehensive PoA. Having said that, my question is, if we have a general power of attorney, would we still need to fill out an IRS-specific form for tax purposes?

thanks again!
posted by leticia at 8:25 AM on January 20, 2011

In case texano does not make it back, the answer is yes. The IRS requires their own form and has its own criteria for who can (and cannot) be the attorney-in-fact.

Follow the links that texano left for you.
posted by Old Geezer at 9:16 AM on January 20, 2011

leticia: Regarding the existing power of attorney your husband has, I can't guarantee without seeing it that it would be acceptable for IRS purposes. My opinion is that Form 2848 is the much better way to go with us.

Here's my thought process on that:
There is a whole list of things we require from non-IRS PoA documents, that may or may not be present on yours. Even if it does meet all our benchmarks, you would have to keep presenting the PoA each time you needed to deal with us about your father-in-law's taxes.

With Form 2848, the authorization gets recorded on our system for future reference. No need to have the form with you each time you deal with us, or include a copy with every piece of correspondence you send.

In the interest of completeness, I'm including the list of PoA requirements so you can compare with your husband's documents (cite is Internal Revenue Manual[5]):

"If a non-IRS document is used, it must contain the following information:

The taxpayer's name and mailing address.

The taxpayer's social security number and/or employer identification number.

The taxpayer's employee plan number, if applicable.

The name and mailing address of the representative.

The type(s) of tax involved (i.e., income) and the federal tax form number.

The specific year(s) or period(s) involved.

For estate tax matters, the decedent's date of death.

A clear expression of the taxpayer's intent concerning the scope of authority granted to the representative.

The taxpayer's signature and date.


"State law powers of attorney" may, or may not, be sufficient for IRS purposes, depending upon whether items (e) through (h) above are included.

A signed and dated statement made by the representative should also be attached to the non-IRS POA. The statement must contain the same declarations contained in Part II of Form 2848."

posted by texano at 6:55 PM on January 20, 2011

Response by poster: Oy vey.

Reading that list of requirements, I can see how it would be much more streamlined to go with the IRS form.


Many thanks to all, especially texano and Old Geezer. This information has been extremely helpful to us.
posted by leticia at 8:05 AM on January 25, 2011

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