Income Taxes and Medicaid Eligibility

Post 20 discusses the importance of liquidating assets in the Medicaid planning process. Events such as distribution of IRA’s, sales of securities and surrender of life insurance give rise to tax consequences. Therefore, prepayment of taxes is one of the spenddown techniques.

It is important to realize that nursing home costs may qualify for the medical deduction under Section 213 of the Internal Revenue Code. The applicant must have a “cognitive impairment” or fail two out of the four activities of daily living.

There are also unique sources of income that could have an effect on Medicaid eligibility. For example, Post 27, discusses the fact that although property in probate is treated as an “inaccessible resource,” the distributions made by an estate to a beneficiary result in taxable income. Fiduciary income tax is a course unto itself, but basically, the distributions result in income tax to the extent of the income of the estate for that year (technically called distributable net income).

Previously, County Medicaid Boards did not ask for verification of income for prior years (Forms 1099). Now such inquiry is made. The reason for this, is that Medicaid is looking for closed out accounts and the disposition of such accounts and also assets that may have inadvertently been omitted.


Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.

© April 2009, Post 64