Masonry Magazine September 1970 Page. 29
TAXES
By MIRIAM McD. MILLER
MEDICARE-DEPENDENT
The IRS has just issued a lengthy ruling on the income tax consequences of medicare payments from the standpoint of the taxability of those payments to the recipients and also from the standpoint of determining whether a person qualifies as a dependent when he receives medicare benefits.
First, the Social Security Act provides two types of medicare benefits. One, generally called "basic medicare," provides basic protection against the cost of hospital or related care for all individuals who are over 65 years of age and who receive monthly social security or railroad retirement payments, and for other individuals who apply for basic medicare protection. It is usually the practice to have the basic medicare payments paid directly to the hospital, etc., and then the covered individual is notified of the amount of the basic medicare benefit paid on his behalf.
The second type of medicare benefit is usually referred to as "supplementary medicare." To receive supplementary medicare an eligible individual must enroll in this program and pay certain monthly premiums. The Federal government matches these amounts. Supplementary medicare covers the costs of doctors' services and a number of other items and services not covered under the basic medicare program.
The questions answered by the IRS with respect to the benefits received by (or on behalf of) an individual under the basic medicare or the supplementary medicare program are (1) whether the benefits received are includible in his "total support" in determining whether he or another taxpayer supplied over half of his support. Secondly, the IRS answers the question of whether such benefits are includible in the gross income of the individual for whom they are paid. Finally, the question is answered whether such benefits are includible in the computation of his retirement income credit.
Support. In order to compute the amount that is contributed to the support of an individual, there must be included in such calculation any amount that the individual contributed in his own behalf. Payments received from Social Security are included to determine the source of support of an individual. As basic medicare payments have been likened to social security payments, any basic medicare benefits received by an individual are includible as part of the individual's own contributions to his support in determining who provided more than one-half of his support.
Now because the proceeds from supplementary medicare benefits are regarded as proceeds from medical insurance, they are not includible in the support computation of the individual by whom they are received. However, the premiums paid for supplementary medicare coverage are includible in the support computation and are attributable to the person who furnishes the premiums.
Premiums paid for supplementary medicare qualify as amounts paid for insurance covering medical care. Thus, to the extent that any hospitalization premiums are deductible these premiums would also be deductible.
Retirement Income Credit. Benefits received by an individual under either basic medicare or supplementary medicare are not includible in the computation of the limitation on the amount of retirement income on which the credit is allowed. This is so because neither the basic medicare benefits nor the supplementary medicare benefits qualify as a "pension or annuity."
Gross Income. In determining an individual's gross income, basic medicare benefits are not distinguishable from the monthly social security payments. Therefore, such benefits received are not includible in the gross income of the individual for whom they are paid. However, supplementary medicare benefits cannot be compared to the monthly social security payments. They are the same as proceeds received through accident or health insurance. Therefore, although for a different reason, supplementary medicare benefits are also not includible in the gross income of the individual who received them.
IRS COMPUTES TAXES
As a result of the Tax Reform Act of 1969, the income level up to which one may elect to let the IRS compute taxes owed has been raised from $5000 to $10,000.
A wage earner whose gross income is $10,000 or under can simply file the basic one page Form 1040 indicating on it only the essential facts to enable the IRS to compute the tax owed by the taxpayer. Then, the IRS will compute the tax and a notice will be mailed to the taxpayer stating the amount of tax due. Should the IRS determine that a refund is due then such refund will be sent to the taxpayer.
TAX INCENTIVES
Tax incentives are being used, more frequently than before, to get private enterprise interested and active in national social problems. For instance, owners of low-income housing who are inclined to improve their properties were given a tax break by the recent Tax Reform Act.
Capital expenditures that are made after July 24, 1969 and before 1975 for the purpose of renovating old properties (that are rented to persons of low or moderate income) may be depreciated on a rapid method. The tax break permitted (a quick write-off of these renovation expenditures) is to allow the property owners to use the straight line depreciation method, using a five-year useful life and no salvage. However, there are two conditions that must be met. Any expenditure depreciated must exceed $3000 per unit over a period of two consecutive years. The second condition is that no expenditure may exceed $15,000 per unit in a building.
Another area in which tax incentives are offered to taxpayers in order to get them involved in social needs is that of air and water pollution. As there would hardly be a material advantage for an existing company to go to the expense of adding anti-pollution devices, the law offers special tax benefits to taxpayers to spur development and installation of effective pollution control facilities. A taxpayer may elect to amortize the cost of certified pollution control facilities over a 60-month period. Thus (with certain restrictions) the entire cost of the pollution control facilities could be deducted (through depreciation) over a five year period.