COVID-19 Emergency Means Making Tax and Insurance Decisions

As COVID-19 affects employment nationwide, more New Jerseyans will need to make strategic decisions about health insurance and tax filing this year.  Marketplace insurance and MAGI Medicaid are based on your 2020 Modified Adjusted Gross Income (MAGI).  There is special enrollment for a change in employment status. MAGI will include any unemployment you collect as well as any distributions from retirement plans (but not loans from those plans).  When you apply, you are essentially giving the government an “honest guess” of your income for the year, and if your guess is off, it will be reconciled on your 2020 return in the first quarter of 2021.

How you file your return is also a strategic decision.  If you’re under 26, it might not have mattered that your parent claimed you as a dependent, because you were on their insurance.  Now, there is the possibility of a cash payment under the CARES Act, and the parent may no longer have a health plan that can cover you.  So, filing your own return for 2020 and getting Marketplace or Medicaid insurance needs to be immediately considered.  Additionally, now that the filing deadline has been extended to July, you may want to review your dependent status on any 2019 return as well.

As if things weren’t complicated enough, you might be able to change your MAGI income with a strategic 401k distribution to put you in an income bracket outside of Medicaid eligibility but within income limits for Marketplace insurance subsidies.  This might be best if you’re over 55 because Medicaid would put a lien against assets at death for those amounts they laid out–private insurance doesn’t do this.

In short, it’s a lot to take in; and frankly, it might be time for a family meeting!  We’re here to help!  Call us at 732-382-6070.

A Cautionary Tale: Estate distribution is “income” that affects eligibility for NJ Homestead Rebate

A New Jersey homeowner’s  acceptance of a $90,000 inheritance from his late sister’s estate in 2014 resulted in loss of his eligibility for the Homestead Rebate, because the inheritance was countable as “income.” . Although receipt of an inheritance by an estate beneficiary is not “income” under NJ or federal income tax regulations, it is still considered income under the NJ Homestead Rebate Act.

The Superior Court, Appellate Division, affirmed the decision of the NJ Division of Taxation in an unpublished decision called Burns v. Dir., Div. of Taxation, Tax Ct. (DeAlmeida, J.T.C.), case #  35-5-8269. Evidently, the homeowner had not wanted to receive the distribution from the Estate and decided he would share it with the family. However, instead of Disclaiming the assets — which would have caused the money to pass as if he had predeceased his sister — he received the distribution in 2014, placed it into his bank account, and then in 2015, gave away $78,000 of this money to other relatives by issuing checks from the account.  

The Homestead Rebate program uses a definition of income that is different than you find in the income tax code. It is similar to what you find in the PAAD program (Prescription Assistance for the Aged and Disabled). For 2014,  the income limit to maintain base year taxes was $85,553 and the income limit to receive a reimbursement was $70,000. In the case I’m discussing, the homeowner’s receipt and use of the $90,000 put him over the limit for the entire program, so he could get no rebate.

In my experience, it’s not uncommon for people to choose to share an inheritance with others. However, there are many laws that impact on that decision, and as we see here, the decision can have an adverse effect on the nice donor. Careful consideration with an attorney of available strategies could have prevented this problem, or at least forewarned the homeowner of what was to come.

Call us for legal advice on entitlement to different government benefit programs, and for estate & trust administration advice and service … 732-382-6070