Income Planning to Keep Your Medicare Part B Premiums From Increasing

Medicare Part B covers certain doctor services, outpatient care, medical supplies and preventive services. You pay a monthly premium for Part B that is automatically deducted from your Social Security benefit payment.

Most people will pay the standard premium amount. If your modified adjusted gross income (MAGI) is above a certain amount, you may be charged an Income Related Monthly Adjustment Amount (IRMAA) - basically a higher premium.

Your MAGI is your total Adjusted Gross Income plus tax-exempt interest income, non-taxable Social Security benefits and untaxed foreign income on your tax return.

Medicare uses the MAGI reported on your IRS tax return from 2 years ago to determine your current year premium.

For example, the standard Part B premium in 2023 is $164.90. If your MAGI on your 2021 return was $97,000 or less if single or $194,000 or less on a joint tax return, you pay the standard 2023 premium.

If the MAGI on your 2021 tax return was between $97,000 up to $123,000 (single taxpayers) or between $194,000 up to $246,000 on a joint return, your 2023 premium would be $230.80.

There are additional income ranges that can bring your monthly premium as high as $560.50 per month in 2023, if your MAGI in 2020 was $500,000 or more for single or $750,000 or more for joint taxpayers. Visit www.medicare.gov/your-medicare-costs/part-b-costs for more details.

These bunnies are too young for Medicare but are discussing future healthcare options nonetheless.

ARE YOU FILING AS MARRIED FILING SEPARATELY? BE CAREFUL!! If your individual MAGI is above $97,000 and less than $403,000, your monthly premium jumps from $164.90 to $527.50. That’s a huge jump.

TAX PLANNING: Let’s say you are single and have $45,000 in Social Security, $35,000 in IRA distributions and $15,000 in interest and dividends in 2021. That brings you to $95,000 in MAGI, which is below the $97,000 threshold where they increase your premiums. If you sold a stock for a $2,001 gain, that would bring you to $97,001 in MAGI and your monthly premium would jump by $66 per month. Perhaps it would be wise to wait and sell that stock in 2022.

The only problem is, Medicare doesn’t announce next year’s premium parameters until the fall, which usually is after you’ve filed your previous year tax returns. What to do?

Well here we are near the end of 2023, which will be used to establish 2025 Part B premiums. The best you can do is just use the 2021 parameters and plan accordingly.

The MAGI cut-off for standard premiums in recent years have changed as follows:

• 2021 (for 2023): $97,000 (single), $194,000 (joint)

• 2020 (for 2022): $91,000, $182,000

• 2019 (for 2021): $88,000, $176,000

• 2018 (for 2020): $87,000, $174,000

• 2015-2017 (for 2017-2019): $85,000, $170,000

What happens if your income jumps really high one year? You sell a rental property, win the Lotto, take a new job, etc. Well, your premiums will jump if your MAGI leaps over those income parameters. Not much you can do about it. The good news is that it will drop back down the following year if your MAGI drops below the income threshold.

There are some unique situations where you are allowed to an appeal a Part B premium IRMAA after you receive your notice from the Social Security Administration. Certain life-changing events that cause an income decrease can be considered to reduce your premium, such as death of a spouse, marriage, divorce, reduction in work hours, loss of pension, involuntary loss of income-producing property due to a disaster and receipt of settlement from employer due to closure or bankruptcy.

Visit www.medicare.gov for more information.

Tax Breaks to Pay For College

Section 529 plans give taxpayers the ability to invest for college and use the funds for college expenses at some point in the future tax-free.

Do you get a tax deduction for contributions to 529 plans? Not on the federal return. Your tax savings comes in the future, as any income generated by the investments made can be distributed tax-free in the future, as long as they are used for qualified educational purposes (defined below).

Some states do offer a tax deduction or tax credit on all or a portion of contributions you make to 529 plans. However, California (along with Kentucky, North Carolina, Delaware, New Jersey and Maine) do not offer such deductions or credits. That said, California does conform to federal law in that distributions used for qualified purposes are not taxed.

What are “qualified” uses of 529 plan funds? Tuition, room and board*, books, supplies, fees and computers, software and internet access

*Room and board includes the cost of housing and a meal plan at a college or university, be it on campus or off campus. However, the allowable amount under a 529 plan cannot exceed what the school’s published “cost of attendance” is. You can typically find this on a university’s website.

You have to be enrolled in school at least half-time to qualify to use 529 plan funds.

Expenses that do NOT qualify for reimbursement under a 529 Plan include travel expenses, health insurance and personal living expenses.

There are no income limits for funding the plan accounts.

What is the maximum you can put into a 529 plan? The California Scholarshare plan has an overall maximum account balance limit of $529,000, which applies to all accounts opened for a beneficiary. See www.scholarshare529.com for more information.

Can grandparents and other relatives contribute to my kids’ 529 plans? Absolutely! They do not get any tax benefits for these contributions and they are considered to be gifts*, but like with other contributions, they grow tax free, as long as the funds are eventually used for college or even a trade school or vocational school, as long as that school is eligible to participate in student aid programs offered by the Department of Education.

*The gift tax exclusion in 2023 is $17,000, up from $16,000 in 2022. That means you can give up to $17,000 per person without filing a federal gift tax return (IRS Form 709).

What happens if I can’t use the money in a 529 plan? First off, you can transfer funds from one kid’s 529 plan to another’s if you need to. That said, if you are unable to use the funds for qualified education, you can always take the money out and pay taxes on the earnings, plus a 10% penalty. And there are certain exceptions to the penalty too.

American Opportunity Credit

The American Opportunity Credit (AOC) can provide tax credits of up to $2,500 per student for the first 4 years of college. You cannot claim it for more than 4 years.

Up to 40% of the credit is refundable; the other 60% must be applied against your tax liability. The maximum credits is derived as follows: 100% of the first $2,000 in qualified expenses and 25% of the next $2,000 of qualified expenses.

Qualified expenses for the AOC includes tuition, books and fees, but DOES NOT include room and board that is allowed to be paid with 529 plan funds.

The challenge with this credit is that it phases out for single taxpayers with modified adjusted gross income between $80,000 and $90,000 and for married taxpayers, $160,000 and $180,000. If this is the case, something to consider for tax planning purposes is for the taxpayer to NOT claim the student as a dependent on their return (even if entitled to), and let the student claim the AOC credit.

Lifetime Learning Credit

If you have already used 4 years of AOC credit, you may qualify for the Lifetime Learning Credit (LLC), which has no limit on the number of years to claim the credit. However, there are even lower income phaseout levels for the LLC, phasing out between $59,000 and $69,000 in modified adjusted gross income for single and $118,000 to $138,000 for married taxpayers.

Additionally, the LLC is not a refundable credit. If you don’t owe taxes, you won’t be able to use the credit. The credit is calculated at 20% of the first $10,000 in qualified education expenses. Consistent with the AOC, the student can claim the credit if the parent does not claim the student on their tax return. However, if the student owes no taxes, there’s no use to this credit.

Qualified expenses for the LLC are the same as for the AOC, except course material expenses MUST be paid to the university as a condition of enrollment.

Scholarships

Keep in mind that any scholarships and grants received must be applied against the tuition and other expenses incurred. In other words, you cannot use 529 plan funds or obtain a education tax credit on expenses paid for with scholarship funds. That would be double dipping!

Speaking of paying for college, HERE IS A LINK to an article on how to complete a FAFSA form.

Should I Start Collecting Social Security Benefits Before Reaching Full Retirement Age?

Full Retirement Age (FRA) was 65 for many years. Congress passed a law in 1983 to gradually increase FRA to reflect increasing lifespans. FRA currently ranges from 65 for those born before 1943 to 67 for those born in 1960 or later. At what point should you start taking Social Security payments?

You can also start receiving Social Security benefits as early as age 62, but your monthly benefit would be reduced anywhere from 25 to 30% as a result. See www.ssa.gov/benefits/retirement/planner/agereduction.html for more information on how much you would receive, based on your year of birth.

You can also delay receiving Social Security beyond your FRA, up until age 70. The benefit to doing this is that your benefits are increased anywhere between 5.5% to 8% per year. See www.ssa.gov/benefits/retirement/planner/delayret.html for more information.

Let’s look at a simple example:

Conejo Joe was born in 1960 and thus turned 62 in 2022. His FRA is 67. His full retirement benefit is, say, $1,000 per month. If he chooses to start receiving payments at age 62, they would be reduced by 30%, to $700 per month. If he chooses to delay receiving benefits until age 70, they would increase by 8% per year over 3 years, to $1240 per month (ignoring increases for inflation).

If Conejo Joe started receiving $700 per month at age 62, by the time he reaches age 70 he would have received $58,800 (ignoring inflation increases). If he waited until age 70, he would receive $1240 per month, or $540 per month more than starting benefits at age 62. It would take him about 9 years to make up the gap.

But if Conejo Joe had other income or continued working at age 62, up to 85% of those $700 per month Social Security payments could be taxed at the federal level (most states, including California, do not tax Social Security benefits). Those taxes should be factored into the decision as to whether he should delay receiving benefits.

If Conejo Joe started taking Social Security at age 67, he would receive $1,000 per month. So by the time he reaches age 70, he would have received total payments of $36,000 (again, ignoring inflation). Had he waited until age 70, he would receive $1240 per month, or $240 more than the FRA benefits he received for the last three years. It would take him 12 1/2 years to make up the $36,000 gap. So if he anticipates living until at least age 82 1/2, in theory it makes sense to wait until age 70 to collect benefits, if possible.

Everyone’s situation is different. Some folks really need the payments early. Others can wait because they are still working. Visit www.ssa.gov for more information and talk to your financial planner and/or CPA for guidance.

One final point. The Social Security Administration says “If you decide to delay your benefits until after age 65, you should still apply for Medicare benefits within three months of your 65th birthday. If you wait longer, your Medicare medical insurance (Part B) and prescription drug coverage (Part D) may cost you more money.

Get or Give Free Stuff With Freecycle

The Freecycle Network has over 5,300 groups and 10.6 million members around the world.  It is a grassroots, nonprofit movement of people who are giving (and getting) stuff for free in their own towns and thus keeping it out of landfills.  Membership is free, and everything posted must be FREE, legal and appropriate for all ages.

More information is available at www.freecycle.org.  There are groups organized and moderated by volunteers in many different locations via use of Yahoo Groups.

Here are the Ventura County area groups as of May 2023:

Thousand Oaks Group (2,500 members)

Simi Valley Group (1,600 members)

Ventura Group (2,000 members)

So check it out!  Somebody may need something that you don't want!

Another source for giving and getting local free stuff is www.craigslist.com.  Here is a link to free stuff in the Ventura County Craiglist and Los Angeles County Craigslist.

The California "Middle Class Tax Refund" Will Be Paid Out in October 2022 through January 2023

The State of California will be issuing tax refunds totaling about $9.5 billion to approximately 23 million Californians starting mid-October through mid-January 2023. This refund is called the Middle Class Tax Refund and was included in the $308 billion California state budget for the fiscal year July 1, 2022 through June 30, 2023.

The Middle Class Tax Refund payout will be as much as $1,050 per household, based on 2020 California “adjusted gross income” (CA AGI) on your tax return.

Qualifications:

• Must have filed your 2020 tax return by October 15, 2021

• Must have CA AGI that falls below certain parameters (shown below)

• Have been a CA resident for at least 6 months in 2020

• Was not eligible to be claimed as a dependent in 2020

• Must be a CA resident on the date the payment is issued

Payment Amounts on Married Filing Joint Tax Returns:

• CA AGI $150,000 or less: $1050 with dependent; $700 without dependent

• CA AGI $150,001 to $250,000: $750 with dependent; $500 without dependent

• CA AGI $250,001 to $500,000: $600 with dependent; $400 without dependent

(So let me get this straight. Our government is going to cut a check for $400 to a couple without kids who earned $500,000 in 2020. Mastro’s is going to be busy!)

Payment Amounts on Head of Household Tax Returns:

• CA AGI $150,000 or less: $700 with dependent; $350 without dependent

• CA AGI $150,001 to $250,000: $500 with dependent; $250 without dependent

• CA AGI $250,001 to $500,000: $400 with dependent; $200 without dependent

Payment Amounts on Single and Married Filing Separate Tax Returns:

• CA AGI $75,000 or less: $700 with dependent; $350 without dependent

• CA AGI $75,001 to $125,000: $500 with dependent; $250 without dependent

• CA AGI $125,001 to $250,000: $400 with dependent; $200 without dependent

How Payments Will Be Received

• If you filed electrically and used the direct deposit option on your return (assuming you had a refund), your payment will be received by direct deposit.

• Otherwise you’ll be paid via debit card.

For more information, visit the Franchise Tax Board “Middle Class Tax Refund” page at taxrefund.ca.gov.

Questions That Come to Mind (that are not addressed by the Franchise Tax Board):

• What happens if your banking information changed since then? Don’t know for sure but I suspect the payment would bounce and they would send you a debit card.

• What happens if your filing status changed from 2020 to today? For example, I was married in 2020 and filed jointly but am single and available (hint hint) today in 2022? Who gets our $1,050 (married, one dependent)? Me or my ex-spouse? Good question. No idea. The FTB did not provide alternative scenarios, so I’d imagine the primary spouse on the return will receive the payment.. You might have to track down the ex for your half.

• I was single in 2020 but am married today with a toddler. How much do I get? The FTB bases the payment on your filing status in 2020, so both you and your spouse will receive payments, if any, based on that.

• What happens if I lose the gift card? Well, you’ll have to bring that up with the FTB. Good luck! Best advice - don’t lose it.

• I didn’t file a tax return in 2020 because my gross income and CA AGI were less than the filing requirements published by the Franchise Tax Board. Otherwise, I met all the other requirements for the refund. How can I get it? Unless the FTB amends its initial rules to address your situation, it appears you are out of luck. But visit the taxrefund.ca.gov website for possible updates.

• I made $17.50 an hour at The Taco Shack in 2020 and will receive a $350 refund. My brother George pulled down $250,000 in 2020 as VP of Stuff at Bookoo Bucko, Inc. and will receive $200. How is that fair? Does that make any sense? Pretty much no, but let’s look at it in a different way. You’re getting 20 hours’ pay. George is only getting a couple hours’ pay. Feel better now?

• I think this whole thing is stupid. The entire $9.5 billion should be used to fund nine desalinization plants along the California coast. How do I tell them to keep the money as I think this is a waste? I don’t think there’s a mechanism in place to not take the refund. But if it’s burning a hole in your pocket, hit the CVG Tip Jar at bit.ly/SupportCVG!

Apply to FEMA for COVID-19 Related Funeral Expenses

The Federal Emergency Management Agency (FEMA) is accepting applications for funeral assistance and reimbursement through its COVID-19 Funeral Assistance Helpline for COVID-19-related funeral expenses incurred after January 20, 2020.

This assistance is limited to a maximum financial amount of $9,000 per funeral and a maximum of $35,500 per application. The COVID-19-related death must have occurred in the United States, including the U.S. territories and the District of Columbia.

The Helpline is 844-684-6333 and is available Monday through Friday from 6 a.m. to 6 p.m. Pacific Time.

Examples of eligible expenses may include, but are not limited to:

• Transportation for up to two individuals to identify the deceased individual

• Transfer of remains

• Casket or urn

• Burial plot or cremation niche

• Marker or headstone

• Clergy or officiant services

• Arrangement of the funeral ceremony

• Use of funeral home equipment or staff

• Cremation or interment costs

• Costs associated with producing and certifying multiple death certificates.

• Additional expenses mandated by and applicable local or state government laws or ordinances.

The information you will be required to provide to FEMA to apply for this assistance includes:

• Your name, Social Security Number, date of birth, mailing address and contact phone numbers.

• Name, Social Security Number and date of birth for each deceased individual.

• Location or address where the individual died.

• Copy of death certificate that indicates the death was caused by, “may have been caused by,” or “was likely a result of” COVID-19 or COVID-19-like symptoms.

  • If the death certificate was issued between January 20 and May, 2020 and does not list COVID-19 as a cause of death, you may submit the death certificate with a signed statement from the original certifier of the death that attributes the death to COVID-19..

• Documentation and receipts for funeral assistance received from other sources, including burial or funeral insurance, donations, other government programs or non-profit organizations.

After you contact FEMA and apply, you can then submit documents either:

• Online at DisasterAssistance.gov

• Via fax at 855-261-3452

• By mail at COVID-19 Funeral Assistance, P.O. Box 10001, Hyattsville, MD 20782.

Visit FEMA.gov/funeral-assistance/faq for additional information.

You cannot apply online. The call will take about 20 minutes.

If you are approved for COVID-19 Funeral Assistance, you will receive funds by direct deposit or a check by mail, depending on which option you chose when you applied for assistance.

All About the Advance Child Tax Credits That Commenced Today, July 15, 2021

Today, the IRS started sending out “Advance Child Tax Credits” to eligible taxpayers for 2021 that were voted into law as part of the American Rescue Plan Act in March.

The law did a number of things for the 2021 tax year only:

• It increased the amount of the Child Tax Credit from $2,000 for dependents under age 17 to $3,600 for ages 5 and under and $3,000 for ages 17 and under.

  • Dependents age 18 and up continue to generate a $500 tax credit, with no advance credit.

  • Note that in prior years, the credit dropped from $2,000 to $500 at age 17, not age 18. So effectively the Child Tax Credit for dependents age 17 increased from $500 to $3,000 for year 2021, which is quite substantial.

  • The ages are determined as of 12/31/21.

• The law allows for Advance Child Tax Credit payments to taxpayers over a 6 month period beginning July 15 through December 15, 2021. The advance payments are as follows:

  • Up to $1,800 of the $3,600 tax credit for ages 5 and under at a rate of $300 per month, beginning July 15th.

  • Up to $1,500 of the $3,000 tax credit for ages 6 to 17 at a rate of $250 per month, beginning July 15th.

  • The remaining 50% of the tax credit will be applied as usual when you file your 2021 tax return in 2022.

• However, there is a “first phaseout” of the increased Child Tax Credit in 2021 once your 2021 modified Adjusted Gross Income (AGI) reaches $150,000 for married filing joint, $112,500 for head of household and $75,000 for single filers.

  • This first phaseout begins to reduce the Child Tax Credit from $3,000 or $3,600 down to $2,000.

  • The reduction is $50 of tax credit for each $1,000 in AGI in excess of the limits shown above. That means the Child Tax Credit drops to $2,000 if your income is $30,000 (ages 6 to 17) or $36,000 (ages 5 and under) greater than the limits.

• There’s also a “second phaseout” if your income reaches $400,000 married filing joint or $200,000 for other filing statuses as there has been in prior years.

Isn’t this great how uncomplicated the rules are? <sarcasm>

How do they determine if you will be receiving the Advance Child Tax Credit? Based on your 2020, or if not filed yet, your 2019 tax return.

The IRS will be sending out “Letter 6419” next January to show the total amount of Advance Child Tax Credits paid. They will need to be included in your 2021 tax returns to derive any remaining Child Tax Credit.

The Advance Child Tax Credits are not taxable income. HOWEVER, if your tax situation changes significantly in 2021 and as a result you are not eligible for the full Child Tax Credit, but you receive the Advance Child Tax Credits, you may have to pay back some of the money when you file the return. For example:

• Your income increased in 2021 and you are no longer eligible for the increased tax credit.

• You no longer claim the dependent for whatever reason.

If you think you are in this situation, you can OPT OUT of receiving the Advance Child Tax Credits at https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021.

• You cannot opt out of payments already received, but you can opt out of future payments.

Inversely, your tax situation may have changed in 2021 that would allow you to receive more Advance Child Tax Credits:

• You had a baby in 2021 or otherwise have additional dependents under age 18.

• Your AGI dropped in 2021 and as a result you are now eligible for Child Tax Credits based on your reduced income.

• Your tax filing status changed in 2021 (single to married, or vice versa) and that changes your eligibility for Child Tax Credits.

Goldstein Weiss, CPAs www.goldsteinweiss.com 818-876-8380

Go to the link above to update your information with the IRS to start receiving Advance Child Tax Credits.