As of January 1st, 2020, your mother can qualify for Medicaid if her gross income is less than $2,349 per month. Many people forget that the Social Security Administration usually withholds taxes and premium payments from Social Security checks and that these withholdings are considered income; in other words, pay attention to her gross income, not her take-home pay. If your mother makes more than the income limit, she is disqualified from Medicaid benefits unless she has a Qualified Income Trust. Remember: a Qualified Income Trust cannot be used to qualify for Non-Waiver “Community Care” programs.
Your mother’s countable income is calculated by adding together all of her income and any property or service she receives to meet basic food and shelter needs, then subtracting exemptions and exclusions. While the IRS may not consider it taxable income when you buy your mother dinner, it is income for Medicaid purposes, so don’t get confused.
If your mother is married, her spouse's income is not included as her income. Texas follows the “name on the check” rule to determine whose income is whose, which simply means that income is attributed to the person whose name is on the check. For example, if your mother receives an annuity payment in her name, it is her income, not the income of both her and her spouse. If both your mother and her spouse are in the same nursing home, double the income limit to determine the maximum amount they can earn and still qualify for Medicaid.
The following is a list of potential income sources and how they are treated:
- VA reimbursements for unusual medical expenses, VA aid-and-attendance allowances, and VA house-bound allowances are not included as income for either applied income purposes or Medicaid eligibility.
- Dividends could be considered income if they are received quarterly, based upon an agreement. If dividends are irregular and not reasonably expected, then they can be excluded from income.
- A reverse mortgage is not considered income for Medicaid. It is reimbursement on a loan.
- Royalty income is treated as income, but you can make deductions for expenses, as pertains to the production and certain taxes.
- Rental income is income, minus actual expenses allowed by the IRS, minus depreciation and depletion. Later, we will go over rental strategies for primary residences.
If your mother is receiving Medicaid benefits and lives in a nursing home, all of her income, except for $60 (which she is allowed to keep for personal care), insurance premiums (other than life insurance), and her Medicare premium will be paid to the nursing home. In return, Medicaid will pay the nursing home bill and all other covered expenses. Medicaid wants your mother to continue to pay any insurance premiums that will assist in the cost of her care. Later in this book, we will go over another strategy, where Medicaid allows your mother to keep up to $721 per month for her personal residence. To qualify, your mother must be likely to return home within six months of entry into a nursing facility or hospital.
Remember: if your mother is not in a nursing home and receives a home care program benefit, she may keep her income to pay for her expenses, but she will need to spend it.
The Income Tax Medical Deduction
If your mother meets certain requirements, all of her expenses for long-term care are deductible from taxable income as medical expenses. For this to apply, your mother must be a "chronically ill individual," and the care must be provided pursuant to a plan of care.A CPA or other licensed tax preparer should be able to assist you in determining whether your mother is a “chronically ill individual." While changing tax laws could significantly impact this deduction, it is still a very important and often-overlooked one. If your mother did not take this deduction in previous tax years, she can claim a refund for the last three tax years by filing form 1040X.