Question

Problem 5-40 (Algorithmic) (LO. 2) Janice spent the last 70 days of 2020 in a nursing home. The cost of the services provided to her was $21,000 ($300 per day). Medicare paid $12,000 toward the cost of her stay. Janice also received $14,360 of benefits under a long-term care insurance policy she purchased. Assume that the Federal daily excludible amount is $380. If the amount is zero, enter 0. What is the effect on Janice's gross income? The amount of her exclusion is $ and the amount included in her gross income is $

Answer 1

Ans:

(1) Medicare premiums are based on your modified adjusted gross income, or MAGI. That's your total adjusted gross income plus tax-exempt interest, as gleaned from the most recent tax data Social Security has from the IRS.

(2) the amount of exclusion is determined as follows:

The excludible amount should be greater of the daily excludible amount allowed by the federal $26600 (70 days * $380) and actual cost of the care $21000 ( 70 days * $300). Therefore, the amount of exclusion will be $26600.

(3) According to the Internal Revenue Service, long-term care insurance is treated much like health insurance. In general, the income from a long-term care insurance policy is non-taxable, and the premiums paid to buy the insurance are tax deductible. When an employee or a person purchases the plan, it is excludible in the gross income but with limitations.

In this case, none of the benefits received by Janice is included in the gross income.

Therefore, amount included in her gross income is $0.