Elder Law Center

One Essex Street

Saugus, Massachusetts 01906

Telephone 781.233.4444   Fax 781.231.2222

May 18, 2006

 Weekly Senior Report

           Last week saw the end of the enrollment period for the Medicare Part D prescription plan and the passing of a major tax cut bill. Neither of which was good for seniors.

           May 15^th was the last day to enroll for the Medicare Part D prescription plan. According to a report by USA TODAY, approximately 7 million of the 38 million eligible enrollees have not joined a plan. Many legislators wish for an extension of the enrollment date, but President Bush brushed off such requests saying, “Deadlines help people understand there’s finality, and people need to get after it, you know?”

           So what happens if you should have enrolled, and haven’t? The answer is you will pay more for the same coverage. The plan says that people who sign up late will have to pay a 1% penalty per month. This means that your monthly premium will go up 1% if you sign up one month late. But there is a catch for the unwary. The next enrollment period starts in November, 7 months away, and that means a 7% penalty for anyone who enrolls in the next enrollment period.

           The other thing that you should be aware of if you have signed up for a Medicare Part D plan is to check and see if you are eligible for the low-income subsidy. If you qualify, your co-payments for prescriptions could be as low as $1 to $5 for prescriptions. To be eligible an individual’s income must not exceed $15,000 and your assets must be less than $11,500 (not including your home). According to the Kaiser Family Foundation, less than 25% of eligible individuals have enrolled for this subsidy.

 CONGRESS SENDS $70 BILLION TAX CUT TO PRESIDENT

           Last Thursday the Senate gave final approval to a $70 billion tax cut. The Bill extends for two years tax cuts originally enacted in 2003 that reduced the tax rate to 15% on dividends and capital gains. It also extends a provision allowing businesses to write off up to $100,000 for equipment purchases.

           Another tax Bill is being planned that would cut another $30 billion in taxes. In this election year, the Republicans are planning another tax cut that would extend tax deductions for state and local sales tax, allowing teachers to deduct the cost of supplies and a research and development tax credit for businesses.

           The Bill that was passed provides that dividends and capital gains are taxed at either 5% or 15%, depending upon how much income you have. For those in the 25% tax bracket or higher, you will pay 15% on dividends and capital gains. If you are in the 15% tax bracket or lower, that tax rate will drop to 5%. Those in the lowest tax bracket do not gain any advantage from this Bill. Tax rates for 2005 are as follows. Please note that the table shows “taxable income” and that is your adjusted gross income minus your standard deduction and personal exemptions. The standard deduction and personal exemption amounts to $18,400 for a married couple, both over 65.

Taxable income over       But not over            The tax is

For taxable income over $326,450 the maximum tax rate is 35%.

           Let’s take a look at how the tax cut will affect the average taxpayer. First off, if you don’t have dividends or capital gains you can stop reading. This only affects people with those two types of income.

 Example: Bob and Sue are over 65, married and file a joint return. They have pension income of $20,000, social security of $19,000, dividends of $5,000 and a capital gain of $5,000. They are taking the standard deduction of $12,000 and $6,400 for personal exemptions.

 Dividends                       $ 5,000

Capital gain                     $ 5,000

Pension                           $20,000

Taxable social security    $ 3,750

Adjusted Gross Income   $33,250

Standard deduction         $12,000

Personal exemption         $ 6,400

Taxable Income              $15,350

With a taxable income of $15,350, that puts them in the 15% tax bracket. Their dividends and capital gain will be taxed at only 5%. This means that they will save 10% in taxes on their dividends and capital gain, or about $1,000.

           Saving $1,000 in taxes is pretty good but critics of the bill say that this is simply a tax cut for the rich. The Paris Hilton’s of this country will see their tax rate drop from 35% down to 15% on dividends and capital gains. Senator Richard Neal, a Massachusetts Democrat said that, “You cut taxes for Wall Street at the expense of Main Street.”

           This $70 billion tax cut comes on the heels of a $4.8 billion cut in Medicaid spending as part of the Deficit Reduction Act, passed on February 8, 2006. This is another case of taking from the poor to giving to rich. Only in this case it’s not really the poor, it’s the poor and the middle class. It seems to me that if they reversed the Medicaid cuts and then only cut taxes by $65 billion we would be in a much better financial state of affairs. But…. No one wants to see Paris Hilton have to pay an extra 20% on her capital gains. Do they?

This article gives general information and not specific advice on individual matters. Persons wanting individualized advice on matters discussed should contact an advisor experienced in those matters. To the extent this article provides information on legal matters, it is based on law in effect in Massachusetts on the date of posting (laws in effect in other states are often quite different).

Ronald H. Surabian is a CPA and attorney who works at the Elder Law Center in Saugus, Massachusetts. He also holds Masters in accounting and a Masters in tax law. He currently serves on the board of directors of the Massachusetts Chapter of the National Academy of Elder Law Attorneys. If you have any questions please call me at the Elder Law Center, One Essex Street, Saugus, MA 01906 (781)233-4444. To view this or any prior article, please visit our web site at www.elderlawcenter.org

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