Thursday, October 22, 2015

2016 Estate and Gift Tax Exemptions Announced

The IRS has released annual inflation adjustment amounts and tax rate schedules that will apply in 2016. Included are the new gift and estate tax exclusion amounts for 2016. The new inflation adjusted numbers are available in Revenue Procedure 2015-53. They apply generally to transactions or events occurring in calendar year 2016  
Estate and Gift Tax Exclusion amounts for 2016
$5.45 million - Federal Estate Tax Basic Exclusion Amount
$5.45 million - Lifetime Gift Tax Exclusion
$14,000 - Annual Gift Tax Exclusion
The new estate and lifetime gift tax exclusion amounts are an increase of $20,000 from 2015. Because a husband and wife each get their own exemption, a married couple can give away $10,900,000 million tax-free in 2016 (provided they have not previously used up any of their exclusions.)
The top tax rate on amounts above the exemption limit is 40%. The high exemption amounts have pretty much done away with estate tax as an estate planning consideration for most people..
Income Tax Brackets for 2016
The top federal income tax rate of 39.6 percent will affect singles whose income exceeds $415,050 and married couples filing jointly with incomes over $466,950 in 2016. The other marginal rates are described in the Revenue Procedure.  
Standard Deduction Amounts for 2016
$6,300               Standard deduction for single taxpayers
$12,600             Standard deduction for married couples
$9,300               Standard deduction for heads of households
$1,250               Additional standard deduction for the aged or blind. (This additional standard deduction amount is increased to $1,550 if the individual is also unmarried and not a surviving spouse.)
Long-Term Care Insurance Deduction Limits for 2016
The IRS also released the long term care insurance premium deduction limitations for 2016:
Attained Age                                      Premium Limit
40 or less                                             $390
More than 40 but not more than 50     $730
More than 50 but not more than 60     $1,460
More than 60 but not more than 70     $3,900
More than 70                                       $4,870

IRS Offers Tips to Help Consumers Avoid Scam Phone Calls

In a Tax Tip issued October 21, the IRS continues to warn consumers to guard against scam phone calls from thieves intent on stealing their money or their identity. The agency offers information and tips to help you avoid being a victim of these scams:

  • Scammers make unsolicited calls.  Thieves call taxpayers claiming to be IRS officials. They demand that the victim pay a bogus tax bill. They con the victim into sending cash, usually through a prepaid debit card or wire transfer. They may also leave “urgent” callback requests through phone “robo-calls,” or via phishing email.
  • Callers try to scare their victims.  Many phone scams use threats to intimidate and bully a victim into paying. They may even threaten to arrest, deport or revoke the license of their victim if they don’t get the money.
  • Scams use caller ID spoofing.  Scammers often alter caller ID to make it look like the IRS or another agency is calling. The callers use IRS titles and fake badge numbers to appear legitimate. They may use the victim’s name, address and other personal information to make the call sound official.
  • Cons try new tricks all the time.  Some schemes provide an actual IRS address where they tell the victim to mail a receipt for the payment they make. Others use emails that contain a fake IRS document with a phone number or an email address for a reply. These scams often use official IRS letterhead in emails or regular mail that they send to their victims. They try these ploys to make the ruse look official.
  • Scams cost victims over $23 million.  The Treasury Inspector General for Tax Administration, or TIGTA, has received reports of about 736,000 scam contacts since October 2013. Nearly 4,550 victims have collectively paid over $23 million as a result of the scam.
The IRS will not:
  • Call you to demand immediate payment. The IRS will not call you if you owe taxes without first sending you a bill in the mail.
  • Demand that you pay taxes and not allow you to question or appeal the amount you owe.
  • Require that you pay your taxes a certain way. For instance, require that you pay with a prepaid debit card.
  • Ask for your credit or debit card numbers over the phone.
  • Threaten to bring in police or other agencies to arrest you for not paying.
If you don’t owe taxes, or have no reason to think that you do:
  • Do not give out any information. Hang up immediately.
  • Contact TIGTA to report the call. Use their “IRS Impersonation Scam Reporting” web page. You can also call 800-366-4484.
  • Report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on Please add "IRS Telephone Scam" in the notes.
If you know you owe, or think you may owe tax:
  • Call the IRS at 800-829-1040. IRS workers can help you.
Phone scams first tried to sting older people, new immigrants to the U.S. and those who speak English as a second language. Now the crooks try to swindle just about anyone. And they’ve ripped-off people in every state in the nation.

Stay alert to scams that use the IRS as a lure. Tax scams can happen any time of year, not just at tax time. For more, visit “Tax Scams and Consumer Alerts” on

Source: IRS Special Edition Tax Tip 2015-18 (October 21, 2015)

Tuesday, October 20, 2015

2016 Social Security Payments Unchanged; Medicare Part B Premiums to Balloon for Millions; Deductibles to Rise

[Update: The Medicare Premium and Deductible increases discussed in the article below have been modified by the Bipartisan Budget Act of 2015.” See my blog post New Budget Law Impacts Medicare and Social Security for more information. JM]

The Social Security Administration has announced that there will be no automatic increase in monthly Social Security and Supplemental Security Income (SSI) benefits for nearly 65 million Americans in 2016. The lack of a cost of living adjustment next year is a result of a lack of inflation over the past year in the index used by Social Security.   
Social Security is the major source of income for most of the elderly. The Social Security Administration reports that:
  •    Nine out of ten individuals age 65 and older receive Social Security benefits.
  •    Social Security benefits represent about 39% of the income of the elderly.
  •    Among elderly Social Security beneficiaries, 53% of married couples and 74% of unmarried persons receive 50% or more of their income from Social Security.
  •    Among elderly Social Security beneficiaries, 22% of married couples and about 47% of unmarried persons rely on Social Security for 90% or more of their income. 
No Increase in Social Security Benefits
The estimated average Social Security benefit payable in 2016 to all retired workers will be $1,341. The estimated average for an aged couple where both are receiving benefits will be $2,212. 
The maximum Social Security benefit for a worker retiring at full retirement age will be $2,663. (Individual benefits vary with factors such as the worker’s lifetime earnings record and age at time of claiming).   
SSI Benefits
With the lack of a cost of living adjustment the maximum federal SSI benefit for an individual will remain at $733 per month. The maximum benefit for a couple on SSI will be $1,100 per month.
Pennsylvania and many other states add to SSI benefits for their residents so that actual payments can exceed the federal maximums. The monthly payment amount is reduced by subtracting the recipient’s monthly countable income.
People who receive SSI usually qualify automatically for Medicaid benefits.
Millions Face Huge Increase in Medicare Part B Premiums
Due to a quirk in the Social Security law it appears that many seniors will be hit with gigantic increases in their Medicare Part B premiums in 2016. (Medicare Part B covers doctors’ bills.) Under the law, premiums must cover 25% of Part B costs. 
But a “hold harmless” provision in the law guarantees that most people cannot have a premium increase that is larger than the cost of living increase they receive in their monthly check. The 70 % percent of beneficiaries who are “held harmless” will pay the same premium as last year (although their deductible will increase).
The other 30% of Medicare beneficiaries are not protected by the “hold harmless” provision. This means that the entire Medicare Part B premium increase must be borne by them – the unlucky 30% of Medicare beneficiaries.   
The unfortunate 30% includes: new Medicare enrollees in 2016 (2.8 million); individuals not collecting Social Security benefits (1.6 million); and beneficiaries already paying higher, income-related premiums (3.1 million). Nine million beneficiaries dually eligible for Medicare and Medicaid are also subject to the higher premiums - state Medicaid program budgets will be forced to bear this cost.
According to the 2015 Medicare Trustees Report, Part B premiums will increase by 52% for the unlucky 30%. The trustees also predict that this increase will be accompanied by a hike in the Part B deductible—up to $223 from $147. Unlike the 2016 Part B premium projections, the estimated increase in the Part B deductible will affect all Medicare beneficiaries.
Congress can and should fix this inequity. But Congress is so dysfunctional at present that it looks like it won’t address the issue. Medicare beneficiaries should take this opportunity to let their Congressional Representatives know that their action or inaction on this issue will affect our votes in the future.
Related Reading
Social Security Changes (Social Security Administration Press Release)

Sunday, October 18, 2015

Medicaid Spousal Impoverishment Protection Standards for 2016

The cost of care in a nursing home can devastate the lifetime savings of elderly couples. In 1988, Congress passed a law intended to prevent the "spousal impoverishment" that can result when one spouse becomes a nursing home resident.  
Under this Medicaid law, minimum amounts of resources and income are protected for a spouse who is still living in the community. These protected amounts are adjusted each year to account for inflation.   
The Federal Government has published the consumer price index for all urban consumers, all items, U.S. city average (the CPI-U) for the month of September 2015. Using these figures it is possible to project Medicaid's 2016 Community Spouse minimum and maximum resource allowance and maximum income allowance for 2016.

What are Community Spouse Resource and Income Allowances?

In general, when your spouse is in a nursing home or needs assistance with home care under a Medicaid Waiver program (like Pennsylvania’s Aging Waiver program) he or she will not qualify for Medicaid benefits until your combined financial resources are reduced to a certain level. That permitted level of so-called “available resources” varies depending on your financial circumstances.

For nursing facility residents, the general rule is that the community spouse can keep ½ of the amount of available resources that were owned by the couple on the date of admission to the nursing facility. However, this standard protected “Community Spouse Resource Allowance” is subject to a ceiling and a floor. The ceiling and floor amounts for 2015 and 2016 are set out below.

In addition to being allowed to keep the resource allowance, the community spouse is also entitled to have a certain level of income called the Monthly Maintenance Needs Allowance. This income allowance is also subject to a ceiling and a floor. If the community spouse does not have the required level of income, that spouse may be allowed to keep some of the institutional spouse’s income. If the income diverted from the institutionalized spouse is still insufficient, the community spouse may be able to keep additional resources.

What are the Resource and Income Allowances for 2016?

These community spouse resource and income allowances are usually adjusted annually. But it appears that this year will be an exception.
Although the 2016 figures have not yet been formally announced by the Centers for Medicare and Medicaid Services (CMS), by law they are based on the consumer price index for all urban consumers published by the Bureau of Labor Statistics (the CPI-U) for September of the prior year. The CPI-U for September of 2015 has now been released.

In 1988, the Medicaid law established the initial community spouse resource allowance at levels of $12,000 minimum and $60,000 maximum for 1989 based on the CPI-U for September 1988. The initial maximum income allowance was set at $1,500. The law provides that these levels be increased by the same percentage as the percentage increase in the CPI-U between September 1988 and the September before the calendar year involved.
The 2015 Allowances

The CPI-U for September 1988 was 119.8. The CPI-U for last year (September 2014) was 238.031. This meant that the CPI-U had increased 98.6903% over the period. For calculation purposes, you can round the percentage to 98.7%. This gave us the figures to use in 2015 which were:

Minimum Community Spouse Resource Allowance = $23,844.
Maximum Community Spouse Resource Allowance = $119,220.*
Maximum Community Spouse Monthly Income Allowance = $2,980.50.

The 2016 Allowances

Largely as a result of declining energy prices the past year has experienced very low inflation. The CPI-U actually fell slightly during the year. As noted above, the CPI-U in September 2014 was 238.031. The CPI-U in September 2015 declined to 237.945.

This has happened in the past. In September of both 2009 and 2010 the CPI-U was below the index figure for September 2008. When that happened, the government continued to use the higher spousal impoverishment figures rather than adjusting them downward. It is probably safe to assume the same will happen in 2016. Thus, the spousal protection allowance figures in 2016 should be as follows:

Minimum Community Spouse Resource Allowance = $23,844.
Maximum Community Spouse Resource Allowance = $119,220.*

Maximum Community Spouse Monthly Income Allowance = $2,980.50. (Note: The Minimum Monthly Income Allowance remains at $1,966.25 – it will be adjusted on July 1, 2016. The income allowances are higher for residents of Hawaii and Alaska.)

Readers should understand that the Community Spouse Resource Allowance is a starting point for planning. A community spouse can typically protect resources far in excess of his or her resource allowance through Medicaid planning techniques such as the purchase of a Medicaid qualified annuity. (Be sure to consult an experienced elder law attorney before purchasing an annuity for purposes of qualification for Medicaid benefits.)

The allowances discussed in this post can be calculated from the September CPI-U. But they have not yet been formally announced by the Centers for Medicare and Medicaid Services (CMS). It is possible that CMS could ultimately announce figures that are slightly different than those above. But my projections have been correct in the past and I have a high degree of confidence in them.

Thanks to my friend and fellow elder law attorney Robert Clofine of York, Pennsylvania, for being first to calculate these 2016 inflation adjusted figures. And thanks to Ken Coughlin of ElderLawAnswers for providing me with information about prior years when the CPI-U fell.

Further Information:

Spousal Impoverishment (from Medicaid.Gov website).

The law governing these protected amounts is found at 42 U.S.C. §1396–5.

* To illustrate, here is how I did the calculation for the Maximum CSRA last year (2015):

238.031/119.8= 1.9869031

Round 1.9869 to 3 decimal places = 1.987

1.987 X $60,000 = $119,220 (the maximum CSRA for 2015) 

Thursday, October 15, 2015

Take Advantage of the Medicare Open Enrollment Period

This year’s Medicare Annual Open Enrollment period begins on October 15th and runs through December 7th. During this time Medicare beneficiaries can make changes to their health and prescription plan coverage for the upcoming year. Plan changes will take effect on January 1, 2016.
It’s a bit complicated to change your health insurance plan, so few beneficiaries take advantage of this opportunity. They do nothing – and automatically renew their current plans. But insurance plans change each year, and your needs may have changed as well. Making the effort to shop around can save a Medicare beneficiary hundreds or even thousands of dollars next year.
Unfortunately, the Open Enrollment period is also a time of opportunity for con artists who prey on Medicare beneficiaries. Seniors must be careful to protect themselves from identity thieves who are seeking personal and financial information. Click here for some ideas on how to avoid common scams and identify theft.
Original Medicare
Most Medicare beneficiaries have coverage through Original Medicare. Original Medicare is coverage managed by the federal government. In most cases this allows you to go to any doctor, other health care provider, hospital, or other facility that’s enrolled in Medicare and accepting Medicare patients. But most drug prescriptions are not covered by Original Medicare – to get drug coverage you will need to obtain a prescription drug (Part D) plan. Since recipients generally have to pay a portion of the cost for each service covered by Original Medicare you will also want to consider obtaining Medicare Supplement (“Medigap”) insurance.
Medicare Advantage Plans
As an alternative to Original Medicare, beneficiaries can choose to enroll in a federally subsidized private Medicare Advantage (MA) plan. These managed care plans are offered by private insurance companies that Medicare approves. MA plans typically place some limitations on the beneficiary’s access to health care providers but they may also expand coverage to some services not covered by Original Medicare. Many MA plans offer coverage for prescription drugs.
During the open enrollment period beneficiaries can enroll in an MA plan, change to a different MA plan, or move to original Medicare from a MA plan. (If you are considering moving to or from traditional Medicare, see my earlier article Why I chose Original Medicare over a Medicare Advantage Plan). About 30 percent of Medicare recipients have chosen to enroll in an MA plan rather than Original Medicare.
Part D Prescription Drug Plans
During open enrollment, Medicare beneficiaries can also enroll in a Part D drug plan for the first time or change to a different drug plan. For some guidance on choosing a drug plan see my earlier article Tips on Choosing a Medicare Prescription Drug Plan.
Use the Medicare Plan Finder
A good way to find and compare your options for Medicare Part D and Medicare Advantage plan coverage is to visit the Medicare plan finder online. Click here to access this tool. Plan information for the upcoming year 2016 is now available on the Medicare plan finder.
Once on the plan finder website you can find and compare the plans that are available in your region. Plug in your basic information including the prescription drugs you expect to be taking in 2016. The plan finder will then provide you with a list of stand-alone Part D drug plans (for those with Original Medicare) and Medicare Advantage plans that are available to you. The list will include the monthly premium, your estimated total annual drug costs and other valuable information.  
The Medicare plan finder is a marvelous tool. If you are comfortable using the internet, you will likely have your list of plan options in less than 30 minutes. Those who are less comfortable on the computer can contact 1-800-Medicare, or their State Health Insurance Assistance Program (SHIP), for assistance in comparing plans.
My two-cents: Instead of making a choice based on the insurance company Medicare plan solicitations that have been arriving in your mailbox, rely on Medicare itself (e.g. the plan finder) or your state SHIP to find the plan that best meets your needs. In Pennsylvania, the state SHIP is called “Apprise” and can be contacted at 1-800-783-7067.
Open Enrollment Period Do’s and Don’ts
A few years ago, the Pennsylvania Department of Aging issued a list of “Do’s” and Don’ts for Medicare beneficiaries to follow during the Medicare open enrollment period. Here is my revision and update of the Department’s advice:  
Medicare Enrollment “Don’ts”
  • Don’t take a call from someone you don’t know or trust offering to help you navigate Medicare plans. You should be the one initiating any queries.
  • Don’t give out any personal information, such as your Medicare number, to unsolicited callers. Remember: your Medicare number is the same as your Social Security number.
  • Don’t toss the mail you received from your health insurer and competing firms about your 2016 Medicare plan. You need to read this material to find out what’s in store for you and learn about potential alternatives. [Check out any plan you are considering using the Medicare Plan Finder]
  • Don’t assume that you (or your spouse) have the most appropriate Medicare plan. Some married couples shouldn't be on the same Medicare plan. Depending on the medications each of you take and the doctors you both need to visit, one Medicare plan may be better for one spouse than another.
Medicare Open Enrollment “Do’s”
  • Do review your current carrier’s Medicare plan for 2016 to ensure you understand any pending changes. Call your insurer with any questions. Then start researching alternatives you can find at 
  • Do study any changes in your plan’s drug coverage and cost. (This will be your Part D plan if you have Original Medicare). Check to see whether each medication you take now or may need next year will be affected. Then, compare this with other plans you could buy.
  • Do seek expert help if you need it. Start with your State Health Insurance Program (APPRISE, if you live in Pennsylvania) which provides free, unbiased, one-on-one counseling and assistance to people with Medicare and their families. [If you don’t live in Pennsylvania, you can find contact information for your state’s Health Insurance Program here].
  • Do take your time, but be sure to make your choices before open enrollment ends on December 7. Although you shouldn’t procrastinate, you should take time to explore your healthcare choices. Medicare’s website, and the Medicare Plan Finder can help you. Even if you wait until the last day of open enrollment, you can still change your Medicare plans for coverage beginning January 1.
For those new to Medicare who need basic information is the site to consult for explanations of Medicare, whether it is Original Medicare (Part A, Part B, Part D, and Medigap/Supplemental Plans) or Medicare Advantage Plans. For Pennsylvania Medicare recipients, state trained APPRISE counselors can provide free unbiased counseling. Find out more by calling APPRISE at 1-800-783-7067.
[Original Source: Pennsylvania Department of Aging “Friday Wrapup,” November 1, 2013.]   
Further Reading
Stop Medicaid Fraud (information from U.S. Department of Health and Human Services and the U.S. Justice Department)