Home / Columns / The fiscal cliff and its impact on seniors

The fiscal cliff and its impact on seniors

At 2 a.m. on Jan. 1, 2013, the Senate overwhelmingly passed a compromise bill, called the American Taxpayer Relief Act of 2012, and narrowly averted the fiscal cliff. But what does that mean for seniors?

Consider the following:

1. Tax rate changes — The bill permanently extended current tax rates for individuals earning less than $400,000 and couples earning less than 450,000. Wealthy taxpayers earning $400,000 or more will revert back to a 39.6 percent tax rate (up from 35 percent). Taxpayers in this category will also see an increase in their capital gains tax rate and dividend tax rate from 15 to 20 percent. Also, married couples that earn more than $300,000 and individuals that earn more than $250,000 will face a phase-out of the personal tax exemption.

2. Estate Tax Changes — The estate tax is alive and well. The exemption for 2013 will be $5.25 million per person and be indexed for inflation. Effective January 1, 2013, the top estate tax rate will increase from 35 to 40 percent. Portability of the unused exemption will remain in place for spouses. And the gift tax exemption will remain at $5 million. The Illinois state tax exemption will increase to $4 million per person.

3. Payroll tax — Since 2011, the payroll tax rate, which funds Social Security, was kept at 4.2 percent. Starting January 1, 2013, the payroll tax rate reverted back to 6.2 percent for those earning wages.

4. Good news for doctors (and all of us) — For another year, doctors will not suffer the previously scheduled 27 percent reimbursement cuts to Medicare patient fees.

5. Older Americans Act funding — There is additional increased funding for important aging programs. For fiscal year 2013, area agencies on aging will receive an additional $7.5 million in additional funds. The Aging and Disability Resource Centers received an additional $5 million. The National Center for Benefits and Outreach Enrollment will also see a $5 million increase in funding. Also Medicare State Health Insurance Programs (SHIP) will receive an additional $7.5 million in additional funding for FY 2013.

6. Sequestration — The scheduled automatic spending cuts are delayed by two months until March 1, 2013. Half of the cuts would come from defense spending and the other half would come from non-defense spending.

7. Class Act repealed — This was to be an attempt at a national long-term care insurance program. It was scrapped in exchange for the establishment of the Commission on Long-Term Care.

8. Commission on Long-Term Care — This commission will develop a plan for the establishment, implementation and financing of a comprehensive system that ensures availability of long-term services and support. The commission will look into the coordination of Medicare, Medicaid and private long-term care insurance. The commission will have 15 members, including the president. The various members will represent the interests of consumers, older adults, family caregivers, healthcare workers, private long-term care insurance, state insurance departments and state Medicaid agencies.

9. Other items — The bill extended Medicare programs for older Americans, including the payment for outpatient therapy services and specialized Medicare advantage plans for special needs individuals. The bill also extended the Qualifying Individual program (QI program).

This is complicated stuff, but don’t let it stop you. Keep reading ou

About Anthony B. Ferraro

Anthony B. Ferraro is the founder and managing member at the Law Offices of Anthony B. Ferraro. He received his Bachelor of Science degree in accountancy from DePaul University and his Master of Science in taxation. After receiving his CPA designation in 1978, he enrolled in law school, earning his Juris Doctor in 1983 from De Paul University. An elder law practitioner, his practice areas include Medicaid planning and applications, guardianship, probate & trust administration, long-term care planning, nursing home contracts and admission, senior estate planning, special needs planning, estate planning, and estate taxation.

Leave a Reply

Your email address will not be published. Required fields are marked *

*