Are taxes owed if all the money goes to a nursing home?


Q. My stepmother is in a nursing home. She qualified for Medicaid through a sell-down of all her assets. She receives a government pension as well as income from my late father’s pension. This money is put into a qualified income trust (QIT) and 100% is provided to the nursing home. I was told by the Medicaid office that she should have no withholding for taxes. The problem is at the end of the year when filing her taxes, she owes money to the IRS. She has no money in her bank account to pay an accountant or to pay these taxes. Should she have to pay taxes when 100% of her income goes to the nursing home under a Medicaid plan?
— Confused

A. It may be time to find a new tax preparer.

Your stepmother may be missing out on a deduction that could make all the difference.

“The stepmother’s payment of income to the nursing home should be treated as a deductible cost of health care, therefore, it’s unusual that taxes would be owed,” said Shirley Whitenack, an estate planning attorney with Schenck, Price, Smith & King in Florham Park. “There also may be additional deductions and credits that seniors can take.”

You should have a qualified tax preparer review her returns to make sure they were properly prepared, Whitenack said.

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This story was originally published on Oct. 26, 2022. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.