The Fiscal Cliff: How it Can Impact Boomers and Seniors| Chicagoland Estate and Elder Law Attorney Blog

The Senate passed a compromise bill, called the American Taxpayer Relief Act of 2012 (ATRA), to avert the fiscal cliff at about 2 AM on January 1, 2013 by an overwhelming 89 to 8 vote. ATRA is generally classified as tax legislation, but has built into it numerous provisions affecting public benefits, elder care, Elder Law and our seniors and boomers in general. What does this mean for seniors and boomers? 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 (those making more than $400,000) will revert back to a 39.6% (up from 35%) tax rate. Taxpayers in this wealthy category will also see an increase in their capital gains tax rate and dividend tax rate from 15% to 20%. Also, married couples that earn more than $300,000 and individuals that earn more than $250,000 will face a phaseout of the personal tax 2. Estate Tax Changes – The estate tax is alive and well. The federal estate tax exemption for 2013 will be $5.25 million per person and be indexed for inflation in future years. Effective January 1, 2013, the top federal estate tax rate will increase from 35% to 40%. Portability of the unused exemption will remain in place for spouses. And the gift tax exemption will remain at $5 million. The Illinois estate tax exemption will increase to $4 million per person for 2013. 3. Payroll tax – Since 2011, the payroll tax rate, which funds Social Security, was kept at 4.2%. Starting January 1, 2013, the payroll tax rate will now revert back to 6.2% for those earning wages. 4. Good news for doctors (and all of us) – For another year, doctors will not suffer the previously scheduled 27% reimbursement cuts to Medicare patients’ 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 an increase of $5 million in funding. Also, Medicare State Health Insurance Programs (SHIP) will receive an additional $7.5 million in additional funding for 2013. 6. Sequestration- The scheduled automatic spending cuts are delayed by a few months. Half of the cuts would come from defense spending and the other half would come from non-defense spending. 7. Class Act is 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. Let’s hope they come up with an affordable long-term care model for our boomers and seniors. Remember, the most painful financial crisis affecting seniors and boomers today is the devastating cost of long-term care ($6,000 to $10,000 per month, per person in the Chicagoland area!). . 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). 10. Note: This is complicated stuff. But don’t let it stop you. Keep reading in the months ahead to understand more of the changes and how they might impact you. Also note that this bill still doesn’t solve the problems regarding sequester and the debt limit debate. That heavy lifting is still coming. Things will certainly heat up in trying to resolve those issues. We will be writing about the impact of “sequestration” soon. The Takeaway: Stay tuned in. Start your ” Senior Estate Planning” now. Anthony B. Ferraro Attorney- MsTax- CPA