Category Archives: Family Finance Law

What Type of Burial Assistance Does the Government Provide?

September 3, 2019

August 20, 2019 | by the National Care Planning Council

General Observations

Death and dying are issues typically overseen by the states. There are very few federal programs to help with burial as compared with numerous federal programs for eldercare. Only when death is a consequence of participation in a federal program is it covered. For example, assistance for burial is covered by Social Security, the Department of Veterans Affairs for veterans, the Department of Defense for military and some minimal support from Medicaid through Medicaid matching funds for states.

States, counties and cities themselves typically offer little assistance for burial unless the deceased is indigent and no funds can be found to pay for cremation or burial. And in many states, the only indigent people who are covered are those who die and the body remains unclaimed. In these cases, local county governments have no recourse but to cover the cost of a cremation. There are some exceptions to this general practice of no support with some states, but over the years more and more states have opted out of programs to help families with burial costs.

By and large, responsibility for funerals and burial or cremation rests with the family. It is therefore very important when planning for the final years of life to have money set aside or available for death. We will discuss below a number of community support options for those who do not prepare. In general, very few community or government assistance programs will pay for a burial. Cremation is generally the rule. A funeral service is optional for the family but typically not paid for with assistance funds.

Social Security Death Benefit

You may receive a one-time payment of $255 when a family member dies, depending on your relationship to them and how long they have worked. Generally, only surviving spouses and children of deceased workers qualify for the one-time death benefit. In addition, the deceased family member must have worked long enough to be insured under Social Security, but it doesn’t matter if they were already collecting Social Security or not.

The death benefit payment is made to the surviving spouse living with the deceased person at the time he or she passed, or if there is no surviving spouse, the payment is made to a child of the deceased person. Spouses who are not living together when one spouse dies may still receive the death benefit if they were eligible for benefits on the deceased spouse’s earnings in the month the spouse passed. If there is no surviving spouse or child who qualifies for the payment, then no payment will be made.

This is a one-time, lump sum benefit; however some survivors may qualify for a monthly benefit in addition to the one-time death benefit. You must apply for the lump-sum death benefit within two years of the family member’s death.

In addition to the one-time payment, certain family members may receive a monthly benefit for a deceased person. For widows or widowers without dependents, this amounts to receiving the larger of the two social security benefits if both were receiving benefits or receiving the deceased person’s benefits if the survivor was not receiving any. The following family members may qualify for Social Security survivor benefits:

  • a widow or widower, beginning at age 50 if disabled or 60 is not disabled;
  • a widow or widower who is caring for your child under the age of 16, regardless of the age of the widow or widower,
  • unmarried children of the deceased also qualify if they are under age 18 (or age 22 if they are disabled).
  • in some cases, even grandchildren, step children or adopted children may qualify for survivor benefits.

If you are divorced, you may qualify for survivor benefits on an ex-spouse if you were married for at least 10 years, and you are age 60 or older when your ex-spouse passes (you only need to be age 50 if you are disabled).

You should notify Social Security and apply for Social Security benefits right away after a family member has passed. To do so, you can call the Social Security Administration or visit the closest office to you. You will need to provide proof of death (death certificate or proof from a funeral home), your Social Security number and your deceased family member’s Social Security number, your birth certificate, marriage certificate if married, divorce papers if you are divorced, and income information for the deceased family member (from W-2s or income tax returns) for the most recent year

Veterans Death Benefits

These monetary benefits are for veterans who were receiving disability income from either Disability Compensation or Veterans Pension.

SERVICE CONNECTED DEATH

$2,000

NON-SERVICE CONNECTED DEATH (Reimbursement; veteran dies while hospitalized by VA)

$762.00

NON-SERVICE CONNECTED DEATH (Reimbursement for Veterans not hospitalized by VA)

$300.00

NSC DEATH STATE CEMETERY (Paid to a state veterans cemetery for the plot/burial)

$762.00

NSC DEATH PLOT ALLOWANCE (This amount will be paid to reimburse for a private-paid plot)

$762.00

A service-connected death is one where the veteran was receiving monthly payments for Disability Compensation and the death was due to the disability or condition for which the veteran was receiving pay. It is also possible to receive a service-connected death if the disability or condition was not the direct cause but the disability or condition contributed substantially to the death.

A non-service-connected death is one where the veteran was receiving monthly payments for Disability Compensation or Veterans Pension but the death was due to some other cause not related to the disabilities or conditions for which the veteran was receiving pay.

It should be noted that generally a non-service-connected death can produce $1,062 a month if the survivors have to pay for a funeral plot. Note that if the veteran died while hospitalized by VA and the survivor has to pay for a funeral plot the total amount available is $1,524.

Disaster Associated Burial Benefit

The most tragic disaster-related loss imaginable is that of a loved one. Under the Individuals and Households Program’s (IHP) Other Needs Assistance (ONA) provision, an applicant may qualify for certain eligible funeral expenses.

FEMA Funeral Assistance is provided to help with the cost of unexpected and uninsured expenses associated with the death of an immediate family member when attributed to an event that is declared to be a major disaster or emergency.

Eligible funeral expenses may include:

  • Cost of casket
  • Mortuary services
  • Transportation of the deceased and/or up to two family members into the area to identify the decedent (if required by state/local authorities)
  • Two Death Certificates
  • Burial plot
  • Interment or cremation
  • Cost of re-interment if disinterment is a) caused by the declared disaster, and b) occurs in a family cemetery on private property
  • Eligibility Criteria

Typically, federal and state personnel at the FEMA Joint Field Office review the supporting documentation from the applicant and payments are approved by the Federal Coordinating Officer (FCO) or designee and his/her state counterpart.

To be eligible for funeral assistance, applicants must provide:

  • A death certificate for the decedent
  • Documentation from a designated, authoritative state or local entity (attending physician, Medical Examiner’s office, or Coroner’s Office as appropriate) that attributes death or the injury causing death to the declared emergency or major disaster
  • Proof that the applicant is the official “next of kin” as defined by the appropriate state or local authority
  • Confirmation that funeral expenses have not been paid for by other resources (Social Security and Veterans Affairs benefits, for example, would duplicate Funeral Assistance and would be subtracted from an award)
  • Evidence of an unmet funeral expense (a receipt from a service provider)
  • Ineligible Costs

Not all applicants reporting funeral expenses will be eligible for Funeral Assistance. Some common reasons for ineligibility include:

  • The death was not attributed to the declared incident
  • Funeral expenses are fully covered by other sources of assistance
  • Insufficient and/or incomplete documentation
  • If disinterment was the result of the disaster, FEMA will provide Funeral Assistance only for a disinterred coffin under the following conditions:
  • The unearthed coffin(s) were located in a family cemetery on their private property
  • The coffin(s) were removed from the ground by the declared disaster

Private Sector and Community Programs

There are a number of ways where the private sector and certain community groups or church denominations will help cover a burial and possibly a funeral.

Taxpayer Interment Benefits

Local taxpayers in many cities and counties qualify for reduced interment costs in cemeteries.

Church Members and Members of Civic Organizations Benefits

Church members and members of civic and other organizations may qualify for funeral assistance or for reduced costs. Some church denominations will also provide burial for their members in the church cemetery. This is principally for Greek Orthodox, Jewish and Catholic faiths but may include other faiths as well.

Crime Victims’ Compensation Fund

A Crime Victims’ Fund often provides funeral benefits in instances of death by a criminal act. There are many crime victim funds across the United States. Most are funded by the state or county. Ask the prosecutor’s office in your area or do a computer search using the name of your county or city and the term “crime victim fund”.

Death Benefits from Pensions, Societies and Other Organizations

Organizations affiliated with some professions, such as the Railroad Retirement Board, as well as some social groups, unions and pensions, offer allowances to defray funeral costs. Some organizations and pension funds include an automatic group life insurance policy on their members. This may include unions and other fraternal organizations as well as veterans service organizations. These may be small amounts of coverage such as $1,000, but adding up benefits from a number of sources might produce enough for a burial or cremation. Here are some examples of funds that will defray costs.

  • Workman’s compensation, if death was work-related,
  • Civil service (federal, state, county or local) retirement pension fund,
  • Federal Employees Life Insurance (Includes a lifetime benefit even after retirement)
  • Railroad fund,
  • Teacher’s fund,
  • Miner’s benefits fund,
  • Trade union fund,
  • Credit union fund,
  • Fraternal organizations fund.

Discounts or Gratis Services from Funeral Homes

For families who simply cannot come up with enough money to bury a loved one, funeral homes may be surprisingly accommodating. Even though they may not advertise it, funeral homes may offer charity for a number of people in the community when no other way to bury a loved one is possible. This might include steep discounts, extended monthly payment plans, extremely affordable economy plans and possibly even providing the burial — in this case very likely a cremation — for free.

Medicaid’s Gift to Children Who Help Parents Postpone Nursing Home Care

September 3, 2019

In most states, transferring your house to your children (or someone else) may lead to a Medicaid penalty period, which would make you ineligible for Medicaid for a period of time. However, there are circumstances in which transferring a house will not result in a penalty period.

One of those circumstances is if the Medicaid applicant transfers the house to a “caretaker child.”  This is defined as a child of the applicant who lived in the house for at least two years prior to the applicant’s entering a nursing home and who during that period provided care that allowed the applicant to avoid a nursing home stay.  In such cases, the Medicaid applicant may freely transfer a home to the child without triggering a transfer penalty.  Note that the exception applies only to a child, not a grandchild or other relative.

Each state Medicaid agency has its own rules for proof that the child has lived with the parent and provided the necessary level of care, making it doubly important to consult with your attorney before making this (or any other) kind of transfer.

Others to whom a home may be transferred without Medicaid’s usual penalty are:

  • Your spouse
  • A child who is under age 21 or who is blind or disabled
  • Into a trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances)
  • A sibling who has lived in the home during the year preceding the applicant’s institutionalization and who already holds an equity interest in the home

Got a Question About Social Security Retirement?

August 30, 2019

NAELA eBulletin:

By Rebecca C. Morgan Stetson Law

The New York Times recently ran an article, 7 of Your Most Burning Questions on Social Security (With Answers).

The questions include the future of Social Security, spousal and survivors benefits, the length of benefits, delayed retirement vs. “break even” claiming,  the lowered amount of benefits for those who temporarily leave the work force for caregiving, taxing benefits, and self-employment.

These are all really good questions (I hope they do another article, cause we all know there are more than 7 burning questions.)  The answers are clear and to the point. I plan to have my students read the article before we cover the topic this fall semester (which will be starting before we know it!) You should read it, too!

A Final Retirement Account Distribution Must Still Be Made After Death

July 30, 2019

Federal law requires that beginning on April 1 of the year after you reach age 70 1/2, you must begin withdrawing a minimum amount from your non-Roth individual retirement account (IRA) or 401(k) accounts. These withdrawals are called required minimum distributions (RMDs).

But what if you die after age 70 1/2 and before all the account funds have been distributed? In the eyes of the law, death is no excuse not to take RMDs from an IRA or 401(k). Your heirs must take the final RMD before they can take control of the account.

Congress created the rules governing the minimum distribution of retirement plan funds to encourage saving for retirement and to allow retirement assets to build up tax-free during the plan owner’s working years. But lawmakers built in provisions so the money wouldn’t simply keep accumulating tax-free forever. The funds you withdraw are treated as taxable income in the year you take the distribution. If you don’t start taking the RMDs from your retirement accounts and pay taxes on the withdrawals, you will face a 50 percent penalty on what should have been withdrawn but wasn’t.

The rules for inheriting an IRA as a spouse are different than the rules for a non-spouse beneficiary, but regardless of who is inheriting the IRA, the heir must take the RMD for the year the account owner died. The full RMD must be taken by December 31 in the year the account owner died, even if he or she died at the beginning of the year. To take the RMD, beneficiaries must contact the custodian of the account and submit a death certificate. If the account owner died before he or she was required to begin distributions, then the beneficiaries do not need to take an RMD.

The money from the RMD will go directly to the beneficiary listed on the account, not the estate. That means it will be taxable income for the beneficiary. If there is more than one beneficiary, it will be split evenly.

To find out the best way to deal with an inherited IRA, contact your attorney.

Tips on Creating an Estate Plan that Benefits a Child with Special Needs

July 1, 2019

Parents want their children to be taken care of after they die. But children with disabilities have increased financial and care needs, so ensuring their long-term welfare can be tricky. Proper planning by parents is necessary to benefit the child with a disability, including an adult child, as well as assist any siblings who may be left with the caretaking responsibility.

Special Needs Trusts
The best and most comprehensive option to protect a loved one is to set up a special needs trust (also called a supplemental needs trust). These trusts allow beneficiaries to receive inheritances, gifts, lawsuit settlements, or other funds and yet not lose their eligibility for certain government programs, such as Medicaid and Supplemental Security Income (SSI). The trusts are drafted so that the funds will not be considered to belong to the beneficiaries in determining their eligibility for public benefits.

There are three main types of special needs trusts:

  • A first-party trust is designed to hold a beneficiary’s own assets. While the beneficiary is living, the funds in the trust are used for the beneficiary’s benefit, and when the beneficiary dies, any assets remaining in the trust are used to reimburse the government for the cost of medical care. These trusts are especially useful for beneficiaries who are receiving Medicaid, SSI or other needs-based benefits and come into large amounts of money, because the trust allows the beneficiaries to retain their benefits while still being able to use their own funds when necessary.
  • The third-party special needs trust is most often used by parents and other family members to assist a person with special needs. These trusts can hold any kind of asset imaginable belonging to the family member or other individual, including a house, stocks and bonds, and other types of investments. The third-party trust functions like a first-party special needs trust in that the assets held in the trust do not affect a beneficiary’s access to benefits and the funds can be used to pay for the beneficiary’s supplemental needs beyond those covered by government benefits. But a third-party special needs trust does not contain the “payback” provision found in first-party trusts. This means that when the beneficiary with special needs dies, any funds remaining in the trust can pass to other family members, or to charity, without having to be used to reimburse the government.
  • A pooled trust is an alternative to the first-party special needs trust. Essentially, a charity sets up these trusts that allow beneficiaries to pool their resources with those of other trust beneficiaries for investment purposes, while still maintaining separate accounts for each beneficiary’s needs. When the beneficiary dies, the funds remaining in the account reimburse the government for care, but a portion also goes towards the non-profit organization responsible for managing the trust.

Life Insurance
Not everyone has a large chunk of money that can be left to a special needs trust, so life insurance can be an essential tool. If you’ve established a special needs trust, a life insurance policy can pay directly into it, and it does not have to go through probate or be subject to estate tax. Be sure to review the beneficiary designation to make sure it names the trust, not the child. You should make sure you have enough insurance to pay for your child’s care long after you are gone. Without proper funding, the burden of care may fall on siblings or other family members. Using a life insurance policy will also guarantee future funding for the trust while keeping the parents’ estate intact for other family members. When looking for life insurance, consider a second-to-die policy. This type of policy only pays out after the second parent dies, and it has the benefit of lower premiums than regular life insurance policies.

ABLE Account
An Achieving a Better Life Experience (ABLE) account allows people with disabilities who became disabled before they turned 26 to set aside up to $15,000 a year in tax-free savings accounts without affecting their eligibility for government benefits. This money can come from the individual with the disability or anyone else who may wish to give him money.

Created by Congress in 2014 and modeled on 529 savings plans for higher education, these accounts can be used to pay for qualifying expenses of the account beneficiary, such as the costs of treating the disability or for education, housing and health care, among other things. ABLE account programs have been rolling out on a state-by-state basis, but even if your state does not yet have its own program, many state programs allow out-of-state beneficiaries to open accounts. (For a directory of state programs, click here.)

Although it may be easy to set up an ABLE account, there are many hidden pitfalls associated with spending the funds in the accounts, both for the beneficiary and for her family members. In addition, ABLE accounts cannot hold more than $100,000 without jeopardizing government benefits like Medicaid and SSI. If there are funds remaining in an ABLE account upon the death of the account beneficiary, they must be first used to reimburse the government for Medicaid benefits received by the beneficiary, and then the remaining funds will have to pass through probate in order to be transferred to the beneficiary’s heirs.

Get Help With Your Plan
However you decide to provide for a child with special needs, proper planning is essential. Talk to your attorney to determine the best plan for your family.

Protecting Your House from Medicaid Estate Recovery

July 1, 2019

After a Medicaid recipient dies, the state must attempt to recoup from his or her estate whatever benefits it paid for the recipient’s care. This is called “estate recovery.” For most Medicaid recipients, their house is the only asset available, but there are steps you can take to protect your home.

Life estates
For many people, setting up a “life estate” is the simplest and most appropriate alternative for protecting the home from estate recovery. A life estate is a form of joint ownership of property between two or more people. They each have an ownership interest in the property, but for different periods of time. The person holding the life estate possesses the property currently and for the rest of his or her life. The other owner has a current ownership interest but cannot take possession until the end of the life estate, which occurs at the death of the life estate holder.

Example: Jane gives a remainder interest in her house to her children, Robert and Mary, while retaining a life interest for herself. She carries this out through a simple deed. Thereafter, Jane, the life estate holder, has the right to live in the property or rent it out, collecting the rents for herself. On the other hand, she is responsible for the costs of maintenance and taxes on the property. In addition, the property cannot be sold to a third party without the cooperation of Robert and Mary, the remainder interest holders.

When Jane dies, the house will not go through probate, since at her death the ownership will pass automatically to the holders of the remainder interest, Robert and Mary. Although the property will not be included in Jane’s probate estate, it will be included in her taxable estate. The downside of this is that depending on the size of the estate and the state’s estate tax threshold, the property may be subject to estate taxation. The upside is that this can mean a significant reduction in the tax on capital gains when Robert and Mary sell the property because they will receive a “step up” in the property’s basis.

As with a transfer to a trust, if you transfer the deed to your home to your children and retain a life estate, this can trigger a Medicaid ineligibility period of up to five years. Purchasing a life estate in another home can also cause a transfer penalty, but the transfer penalty can be avoided if the individual purchasing the life estate resides in the home for at least one year after the purchase and pays a fair amount for the life estate.

Life estates are created simply by executing a deed conveying the remainder interest to another while retaining a life interest. In many states, once the house passes to the remainder beneficiaries, the state cannot recover against it for any Medicaid expenses that the ife estate holder may have incurred.

Trusts
Another method of protecting the home from estate recovery is to transfer it to an irrevocable trust. Trusts provide more flexibility than life estates but are somewhat more complicated. Once the house is in the irrevocable trust, it cannot be taken out again. Although it can be sold, the proceeds must remain in the trust. This can protect more of the value of the house if it is sold. Further, if properly drafted, the later sale of the home while in this trust might allow the settlor, if he or she had met the residency requirements, to exclude up to $250,000 in taxable gain, an exclusion that would not be available if the owner had transferred the home outside of trust to a non-resident child or other third party before sale.

Contact your attorney to find out what method will work best for you.

Maximizing Social Security Survivor’s Benefits

June 4, 2019

Social Security survivor’s benefits provide a safety net to widows and widowers. But to get the most out of the benefit, you need to know the right time to claim.

While you can claim survivor’s benefits as early as age 60, if you claim benefits before your full retirement age, your benefits will be permanently reduced. If you claim benefits at your full retirement age, you will receive 100 percent of your spouse’s benefit or, if your spouse died before collecting benefits, 100 percent of what your spouse’s benefit would have been at full retirement age. Unlike with retirement benefits, delaying survivor’s benefits longer than your full retirement age will not increase the benefit. If you delay taking retirement benefits past your full retirement age, depending on when you were born your benefit will increase by 6 to 8 percent for every year that you delay up to age 70, in addition to any cost of living increases.

You cannot take both retirement benefits and survivor’s benefits at the same time. When deciding which one to take, you need to compare the two benefits to see which is higher. In some cases, the decision is easy—one benefit is clearly much higher than the other. In other situations, the decision can be a little more complicated and you may want to take your survivor’s benefit before switching to your retirement benefit.

To determine the best strategy, you will need to look at your retirement benefit at your full retirement age as well as at age 70 and compare that to your survivor’s benefit. If your retirement benefit at age 70 will be larger than your survivor’s benefit, it may make sense to claim your survivor’s benefit at your full retirement age. You can then let your retirement benefit continue to grow and switch to the retirement benefit at age 70.

Example: A widow has the option of taking full retirement benefits of $2,000/month or survivor’s benefits of $2,100/month. She can take the survivor’s benefits and let her retirement benefits continue to grow. When she reaches age 70, her retirement benefit will be approximately $2,480/month, and she can switch to retirement benefits. Depending on the widow’s life expectancy, this strategy may make sense even if the survivor’s benefit is smaller than the retirement benefit to begin with.

Keep in mind that divorced spouses are also entitled to survivor’s benefits if they were married for at least 10 years. If you remarry before age 60, you are not entitled to survivor’s benefits, but remarriage after age 60 does not affect benefits. In the case of remarriage, you may need to factor in the new spouse’s spousal benefit when figuring out the best way to maximize benefits.

Advocates Urge ABLE Age Increase to Sustain System

June 4, 2019

NAELA News:

By David M. Goldfarb, Esq.

The ABLE Age Adjustment Act would raise the aging of onset of a disability to 46.

Four years ago, Congress passed the Achieving a Better Life Experience (ABLE) Act of 2014, creating tax-favored accounts for persons with disabilities to save and pay for disability-related expenses. Since its passage, 41 states and the District of Columbia have created programs.

Yet despite more than 25,000 ABLE accounts opened, the National Association of State Treasurers (NAST) warned that the current program’s trajectory is not sustainable. To achieve sustainability, 390,000 ABLE accounts would need to be opened by 2021.

NAELA’s history with the legislation is complicated. While we supported the concept, the initial draft, which had no limits to funding an account, included a Medicaid payback provision. That put previously protected third-party money at risk if placed in an ABLE account instead of a third-party special needs trust.

But the final version proved to be a great benefit. That is for those who could qualify. Vastly scaled back from the initial draft, it capped yearly contributions to the gift tax exclusion amount ($15,000 in 2019). While the Medicaid payback remained, the money at risk was now vastly lower. Unfortunately, the scaled back benefit only applied to those who developed a disability before the age of 26.

The final bill’s age limitations upset many in the disability community who had lobbied hard for the ABLE Act for years only to see many individuals unable to qualify.

Given this, disability advocates have since focused on expanding the age limit needed to qualify.

That led to the introduction of the ABLE Age Adjustment Act last Congress. The legislation would raise the aging of onset of a disability to 46. Many have asked why 46? The answer is that it’s halfway to 65 from 26, the original cut-off age.

In March of this year, Sens. Bob Casey (D-PA), Jerry Moran (R-KS), Chris VanHollen (D-MD), and Pat Roberts (R-KS) along with Reps. Tony Cardenas (D-CA), Cathy McMorris Rodgers (R-WA), Steve Cohen (D-TN), Brian Fitzpatrick (R-PA), Michael Turner (R-OH), Max Rose (D-NY), and Debbie Wasserman Schultz (D-FL) reintroduced the legislation.

The timeline and likelihood for passage remain unclear. However, both Republicans and Democrats would like to address a few issues with the big tax reform bill passed in 2017. In addition, a number of tax provisions expire, requiring an extension. That could give rise to an opportunity later in the year for a legislative vehicle to include the ABLE Age Adjustment Act.

The good news from an advocacy perspective is that raising the age solves the main issue for NAST: increasing the number of accounts. According to the National Disability Institute (NDI), about 6 million individuals could qualify under current law. By raising the age to 46, an additional 8 million could qualify.

Earlier this year, as NAELA’s Sr. Public Policy Manager, I was selected to become a co-chair of the Consortium for Citizens with Disabilities Financial Security Task Force, which in part coordinates strategy and outreach for passing the ABLE Age Adjustment Act. By providing the expertise of NAELA members to Congress and the disability community at large, hopefully we’ll be able to make a difference in your clients’ lives by expanding access to these accounts.

About the Author

David M. Goldfarb, Esq., is NAELA’s Senior Public Policy Manager.

Social Security Trustees Report 2019

May 1, 2019

NAELA News:

Social Security Combined Trust Funds Gain One Year Says Board of Trustees

Disability Fund Shows Strong Improvement—Twenty Years

The Social Security Board of Trustees today released its annual report on the long-term financial status of the Social Security Trust Funds. The combined asset reserves of the Old-Age and Survivors Insurance and Disability Insurance (OASI and DI) Trust Funds are projected to become depleted in 2035, one year later than projected last year, with 80 percent of benefits payable at that time.

The OASI Trust Fund is projected to become depleted in 2034, the same as last year’s estimate, with 77 percent of benefits payable at that time. The DI Trust Fund is estimated to become depleted in 2052, extended 20 years from last year’s estimate of 2032, with 91 percent of benefits still payable.

In the 2019 Annual Report to Congress, the Trustees announced:

  • The asset reserves of the combined OASI and DI Trust Funds increased by $3 billion in 2018 to a total of $2.895 trillion.
  • The total annual cost of the program is projected to exceed total annual income, for the first time since 1982, in 2020 and remain higher throughout the 75-year projection period. As a result, asset reserves are expected to decline during 2020. Social Security’s cost has exceeded its non-interest income since 2010.
  • The year when the combined trust fund reserves are projected to become depleted, if Congress does not act before then, is 2035 – gaining one year from last year’s projection. At that time, there would be sufficient income coming in to pay 80 percent of scheduled benefits.

“The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them,” said Nancy A. Berryhill, Acting Commissioner of Social Security. “The large change in the reserve depletion date for the DI Fund is mainly due to continuing favorable trends in the disability program. Disability applications have been declining since 2010, and the number of disabled-worker beneficiaries receiving payments has been falling since 2014.”

Other highlights of the Trustees Report include:

  • Total income, including interest, to the combined OASI and DI Trust Funds amounted to just over $1 trillion in 2018. ($885 billion from net payroll tax contributions, $35 billion from taxation of benefits, and $83 billion in interest)
  • Total expenditures from the combined OASI and DI Trust Funds amounted to $1 trillion in 2018.
  • Social Security paid benefits of nearly $989 billion in calendar year 2018. There were about 63 million beneficiaries at the end of the calendar year.
  • The projected actuarial deficit over the 75-year long-range period is 2.78 percent of taxable payroll – lower than the 2.84 percent projected in last year’s report.
  • During 2018, an estimated 176 million people had earnings covered by Social Security and paid payroll taxes.
  • The cost of $6.7 billion to administer the Social Security program in 2018 was a very low 0.7 percent of total expenditures.
  • The combined Trust Fund asset reserves earned interest at an effective annual rate of 2.9 percent in 2018.

The Board of Trustees usually comprises six members. Four serve by virtue of their positions with the federal government: Steven T. Mnuchin, Secretary of the Treasury and Managing Trustee; Nancy A. Berryhill, Acting Commissioner of Social Security; Alex M. Azar II, Secretary of Health and Human Services; and R. Alexander Acosta, Secretary of Labor. The two public trustee positions are currently vacant.

View the 2019 Trustees Report at www.socialsecurity.gov/OACT/TR/2019/.

 

Your Clients May Be Eligible for a Tax Credit that Helps Working Caregivers Pay for Day Care

March 29, 2019

Paying for day care is one of the biggest expenses faced by working adults with young children, a dependent parent, or a child with a disability, but your clients need to know that there is a tax credit available to help working caregivers defray the costs of day care (called “adult day care” in the case of the elderly).

In order to qualify for the tax credit, the taxpayer must have a dependent who cannot be left alone and who has lived with them for more than half the year. Qualifying dependents may be the following:

  • A child who is under age 13 when the care is provided
  • A spouse who is physically or mentally incapable of self-care
  • An individual who is physically or mentally incapable of self-care and either is the taxpayer’s dependent or could have been the taxpayer’s dependent except that his or her income is too high ($4,150 or more) or he or she files a joint return.

Even though individuals can no longer receive a deduction for claiming a parent (or child) as a dependent, your clients can still receive this tax credit if their parents (or other relatives) qualify as a dependent. This means the caregiver must provide more than half of the relative’s support for the year. Support includes amounts spent to provide food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. Even if the caregiver does not pay more than half the parent’s total support for the year, the individual may still be able to claim his or her parents as dependents if the individual pays more than 10 percent of the parent’s support for the year, and, with others, collectively contributes to more than half of the parent’s support.

The total expenses that can be used to calculate the credit is $3,000 for one child or dependent or up to $6,000 for two or more children or dependents. So if the taxpayer spent $10,000 on care, they can only use $3,000 of it toward the credit. Once taxpayers know their work-related day care expenses, to calculate the credit, they need to multiply the expenses by a percentage of between 20 and 35, depending on their income. (A chart giving the percentage rates is in IRS Publication 503.) For example, if someone earns $15,000 or less and has the maximum $3,000 eligible for the credit, to figure out the credit he or she multiplies $3,000 by 35 percent. If an individual earns $43,000 or more, he or she multiplies $3,000 by 20 percent.

The care can be provided in or out of the home, by an individual or by a licensed care center, but the care provider cannot be a spouse, dependent, or the child’s parent. The main purpose of the care must be the dependent’s well-being and protection, and expenses for care should not include amounts paid for food, lodging, clothing, education, and entertainment.

To get the credit, taxpayers must report the name, address, and either the care provider’s Social Security number or employer identification number on the tax return.

For more information about the credit from the IRS, click here and here.