Friday, March 30, 2012

Home health aide pay is getting more attention, and it needs to

Dean Baker and Steven L. Dawson has an important op-ed on p A15 of the Friday March 30, 2012 Washington Post, “Home care: a calling but also a job”, titled online as “Home health aides deserve a living wage”, link

lBaker is co-director of the Center for Economic and Policy Research (website url link).  Dawson is president of the Paraprofessional Healthcare Institute (website url link). 

The authors talk about the “companionship exemption” (established in 2007 by the Supreme Court for live-ins in a case in Long Island, NY), but don’t get far into the practice of hiring hourly aides for home care as independent contractors, possibly illegally.

The last paragraph of the piece here is disturbing, referring to a social expectation that women leave the workplace to take care of aging parents.  Generally, this can happen to all childless people, the “family slave” problem.  The authors point out the need for two incomes (although social conservatives like Santorum have been blaming women and even gays for that – by competing for the “family wage”)  and the authors write “the country needs a national solution that helps us all meet our family responsibilities.”   Just what is going on in the Supreme Court?  Seriously, family responsibility doesn’t wait for pregnancy to start.  It’s already there.

Tuesday, March 27, 2012

Comparing Roth and Traditional IRA's; how Social Security income can double up in taxes

Personal Fidelity offers a dynamic web page that helps consumers check their eligibility to start or add to both traditional and Roth IRA’s, and offers charts of comparison between traditional and Roth.

The basic link is here

I’m suddenly finding myself in a situation of having to plow back $6000 into a Traditional.  If you have K-1 “indirect income” from an estate, it can “double up” if it brings your Social Security income back up into the 85% taxable range.

Sunday, March 25, 2012

Could employer defined-benefit pensions simply be replaced by a "privatized social security" system?

Teresa Ghilarducci has an interesting perspective (in the New York Times) on the problem of (defined benefit) pension costs, for both public and private employers, titled, “Don’t cut pensions, expand them”, here.  

In California, there is a pilot program to let private employees to enroll in a state-managed pension system  financed by workers and employers. The writer argues that the pooling of plans reduces risk and tends to improve returns for everyone.

Pie in the sky?

This is beginning to sound like privatized social security.

Wednesday, March 14, 2012

Tax on income earned by estate: it may be cheaper to pay on your own return

People who receive distributions from estates in 2011 for someone who died in 2010 or 2011 may find it advantageous to pay income earned by the estate before distribution on their own returns, as these are often lower than the estate tax rates. A K-1 form is prepared (by the tax advisor) to show how to adjust the 1040 or 1041. 

Estates (even those under the $5 million) do pay tax on what they earned (not the principal). For deaths in 2010 there are special carryover strategies available that don’t apply to most people.

For 2011

Estate income:
0 to 2300
Tax = 0
2301 to 5450
Tax = (Income * .25) minus 230
5451 to 8300
Tax = (Income * .28) minus 393.50
8301 to 11350
Tax = (Income *.33)  minus 808.50
11351 and up
Tax = (Income *.35)  minus 1035.50

As one can see, the individual rates may be lower (look here)
This strategy would leave more money in the estate untaxed for future distribution or use as dictated in a will or trust document.

There are other tricky concepts like “generation skipping tax” (GST) and “clawback” that can sometimes be important in some families. The best writeup I could find quickly was by Berger and Singerman, here.

Tuesday, March 13, 2012

$5 million fed estate tax "exemption" would expire at end of 2012 if Congress doesn't act again

It’s important to note that the extension of the “generous” federal estate tax exemption ($5 million) would expire on Dec. 31, 2012, and go back to the 2001 law.  So, if Congress does not act, the heirs of someone who passes away on Jan. 1, 2013 would again be subject to the levy of a tax above $1 million on the estate at 55% before distribution can occur.  If the estate contained real estate of highly assessed value, it could easily put the estate over $1 million.  An heir living in such a home could have to move to pay the taxes.

One would expect a GOP controlled House to act on this matter during 2012.  The politics of the GOP primaries and the general election in November could play into the issue in unpredictable ways. 

Sunday, March 11, 2012

More on "estate tax" and "inheritance tax" terminology

I find, on the Internet, a lot of confusion between the terms “estate tax” and “inheritance tax”.  An “estate tax” is applied to the estate before distribution to heirs.  In the US, for deaths occurring in 2010 or 2011, the “exempted amount” (in most cases) for the federal tax is $5 million.

Dianne Reis has a website that explains the two terms, here. In the United States, the federal government has an estate tax (as above) but no subsequent “inheritance tax” on beneficiaries after distribution (whether there is a trust wouldn’t seem to matter).  If it did, that would be another example of “double taxation” (see Khan Academy’s video on the previous post).  But many states do have their own “inheritance tax” applied to beneficiaries upon distribution, especially those who are not legal spouses or (sometimes) children.  In some states the rates are steep.  

Friday, March 09, 2012

Reviewing the whole topic of estate taxes

If “you” are in the process of inheriting from an estate(s), taxes can indeed become complicated.
Things that can matter are the year of death, the year of distribution (because distribution often happens months to years after death, as probate or trust liabilities must settle first).  One could get distributions or income from more than one estate in a given year; or vice, versa (more common) a single estate has multiple beneficiaries.

The best reference that I could find on the whole subject is at Martindale, here. has a reference that can be useful, and discusses the “generationg skipping transfer tax”, here.   Ehow has a reference that explains that the “estate tax” concept applies to the estate before wealth is transferred to beneficiaries, here.

There was a “threat” that the older death tax could return (as the “death tax” protections were set to expire after 2010) to 2001 levels, with estate taxes of 55% over the value of 1 million.  As most people heard, Congress “extended” the estate tax “exemptions” (to use the term loosely), in such a way that for people who die in 2010 or 2011, the base exemption is $5 million (for a person, $10 million for a married couple). In fact, for 2010 there is a technical “deferral” which probably doesn’t often work to the advantage of most people (Martindale explains it). 

Without there could be serious problems for a single person “inheriting” the estate.  Suppose the person has moved back “home” for eldercare reasons.  The parent dies at the end of 2010.  Suppose the house is in a metropolitan area (like DC) where assessed property values haven’t fallen much (compared to many areas affected by the mortgage crisis).  Even if the property is paid off, if it has a high assessed value, the 55% old tax rate could have applied on much of it.  That could force the single person to sell it anyway to recover the money and find another place to live, before taking distribution. Now there is a public policy question: many the aim of it is to get bigger, more valuable properties into the hands of younger “families” anyway.  Keeping a higher death tax could have served that purpose, even if social conservatives are known for trying to preserve generational wealth.

Wikipedia has a summary article on the Estate Tax in the US with important tables (as based on date of death) here.

If you have income from a trust before it is distributed to you, then you get a form K-1 (or 1041, here), which tells you how much additional amount to report on various items (both income and possible gains, losses and deductions) of the various 1040 sections. 

Khan Academy has this primer:

Thursday, March 08, 2012

American Airlines might have terminated pensions, turning to the PBGC

American Airlines, in its Chapter 11 restructuring, had considered terminating existing employee pensions and dumping them on the PBGC, which would result in reduced pensions for long-retired employees.  It has agreed not to do this, but merely to stop pension contributions, in the latest story by Chris Isodore on CNN.

The possibility of pension termination, instead of a freeze offer, is still in play for pilots, apparently.  This could result in possible labor instability in the future.

The possibility of pension termination for long-retired employees in troubled companies can be a serious financial planning hurdle for many retirees.

Sunday, March 04, 2012

Young British man rows up the East Cost to raise money for Alzheimer's research

The Huffington Post is reporting (on AOL) that 24-year-old Lewis Colam, from the UK, is performing a solo rowing (in a 15-foot craft) event from Miami to New York to raise money for Alzheimer’s.  His own site is here. He was motivated by watching his grandmother decline with Alzheimer’s. He resigned from his job in London to do so. He starts the event in early March 2012. 

The Fisher Center for Alzheimer’s Research has a video (Jan. 12, 2012) on Fox News to the effect that Alzheimers now costs the US economy $172 billion a year. It’s not clear how recent revisions in the definition of the disease would affect the number.  About 170 million Americans have been affected in one way by the disease in their families.

The Fisher Center for Alzheimer’s Research also has a link for the National Alzheimer’s Plan, here

Thursday, March 01, 2012

Clients should be careful with caregiver personnel issues, even if they come from agencies

To open the new month, I’ll note that I’ve had conversations recently that indicate that home health agencies, in general, may be “hiring” aides as independent contractors when these persons should be treated as employees, according to the law or Department of Labor regulations.

Here’s a typical reference.

Another one gives advice to people hiring aides, here

When people are employees and are not live-ins, they typically are entitled to overtime. 
An agency is typically responsible for checking green card status and for handling all IRS and FICA withholdings.  But there has been some under-the-table comment that the client might be liable if he or she knows or reasonably suspects that this is not being done, or that the agency isn’t paying overtime when it should. 

Agencies don’t always charge clients for overtime (when one caregiver is present for more than 40 hours but not a live-in).  Some charge more nights and holidays or weekends.  But they might be responsible for paying their own non live-in employees overtime, and it’s conceivable that could fall back to the client.
There was a detailed discussion of previous court rulings on the issue March 2, 2011.