By Bernard A. Krooks, Certified Elder Law Attorney
The Tax Cut and Jobs Act was enacted while most of us were away for the holidays at the end of 2017. Much has been written about the changes made to corporate tax rates and those of certain businesses, as well as the elimination of certain itemized deductions for individuals. Less publicized, however, are the tax law changes made that will have an effect on seniors and individuals with disabilities. Here’s a summary of some of the most important changes in that area:
There were two very positive changes to ABLE accounts. ABLE accounts are accounts that can be set up for a person with disabilities who became disabled prior to age 26. These accounts can benefit from tax-free growth while not disqualifying the beneficiary for government benefits. An individual can have only one ABLE account and contributions are capped at $15,000 a year. ABLE accounts are similar to 529 accounts, but there are a number of differences. 529 accounts are used to pay for qualified education expenses, while ABLE accounts are used to pay for qualified disability expenses. Prior to the new tax law, it was not possible to move money between a 529 account and an ABLE account without paying penalties and taxes. This created a problem for many who set up 529 accounts upon the birth of a child only to learn a few years later that the child has Autism or some other disability and will likely not need the money for higher education. The child will, however, need the money for other items necessary to improve his quality of life. Commencing in 2018, you can now roll a 529 account into an ABLE account of the same individual or certain family members. The amount rolled over, however, counts towards the $15,000 annual ABLE account contribution limit. Thus, if there have already been contributions totaling $15,000 this year, then no rollover from a 529 account is permitted that year.
The second big change relating to ABLE accounts allows individuals to contribute an additional $12,000 (above the $15,000 annual limitation) to their ABLE account if they have earnings from a job. While there are limitations on who can take advantage of this new provision (for example, it does not apply to folks who participate in certain retirement plans), it is a great opportunity for individuals with disabilities to save money on a tax-free basis without jeopardizing their government benefits. Remember, individuals with disabilities who receive Supplemental Security Income (SSI) can have no more than $2,000 in assets (not counting their ABLE account).
Another change with is expected to benefit seniors who have large medical expenses is the reduction in the medical expense floor. Prior to the enactment of the new tax law, individuals could deduct medical expenses as an itemized deduction only if those expenses exceeded 10% of their adjusted gross income. The original version of the new tax law that emanated from the House of Representatives would have completely eliminated the medical expense deduction. Fortunately, cooler heads prevailed in the Senate and not only was the medical expense deduction maintained, it was actually enhanced temporarily. For the 2017 and 2018 tax years, the medical expense deduction floor is reduced to 7.5% of adjusted gross income. This should allow more people (especially seniors and others with chronic illnesses) to take advantage of this deduction, although with the increased standard deduction under the new tax law it is unclear how many people will benefit from this provision. Starting in 2019, the medical expense deduction floor reverts back to 10%.
With regard to medical expenses, keep in mind that the deduction applies only to unreimbursed medical expenses. So, if something is covered by insurance, then that portion of the expense is not deductible. Also, the deduction is only for expenses actually paid during the year, not incurred. So if you have a medical procedure done in December and don’t pay for it until March, the deduction is not available until the year in which it is paid. However, if you paid for the December medical procedure by using your credit card in December, the amount would be deductible in that year even if you didn’t pay the credit card bill until March of the following year. Sound confusing? It is. Make sure you work with a qualified tax professional any time you are dealing with complicated tax issues so you don’t get an unwanted letter from the IRS.
Bernard A. Krooks, Esq., is a founding partner of Littman Krooks LLP and has been honored as one of the “Best Lawyers” in America for each of the last seven year, past President of the National Academy of Elder Law Attorneys (NAELA), past President of the New York Chapter of NAELA and also served as chair of the Elder Law Section of the New York State Bar Association. He has been selected as a “New York Super Lawyer” since 2006. Call 914-684-2100 or visit elderlawnewyork.com.