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3 Things 2-26-24

Thing One

 

 EITC Shock Sets In For Some Early Tax Filers

 

The Earned Income Tax Credit (EITC) helps low- to moderate-income workers and families get a tax break. If you qualify, you can use the credit to reduce the taxes you owe – and maybe increase your refund.

To qualify for the EITC, you must: 

 

  • Have worked and earned income under $63,398.

  • Have investment income below $11,000 in the tax year 2023.

  • Have a valid Social Security number by the due date of your 2023 return (including extensions).

 

Many early tax filers who expect to get money back from the IRS have noticed those refunds are significantly smaller this year.  Some analysis done by kiplinger.com points to the EITC as the most significant source of refund money and explains why some filers’ refunds may have been negatively impacted:

 

“According to IRS data, the average tax refund was only $1,395 as of Feb. 2. At that same point last year, tax refunds averaged $1,963.  Keep in mind that just because early tax filing data doesn’t fully reflect 2024 refund amounts doesn’t mean your refund won’t still be lower this year. Not adjusting tax withholdings on your W-4 Form after experiencing a life change (for example, a change in the number of dependents) can increase your tax liability when you file. And if a dependent turns 17 in 2023, they will no longer be considered a qualifying child to claim the child tax credit (CTC.) 

 

Here are a few more of the many reasons that can cause lower tax refunds (or higher tax bills):

 

·       Making more money (or a spouse making more money, if filing jointly) can reduce the amount of the EITC you qualify for and might even disqualify you from claiming it altogether.

·       Having a dependent turn 19 (or 24 if a full-time student) also affects the EITC for some taxpayers.

·       Starting a side gig or business and not making enough estimated income tax payments can result in a higher tax bill.

·       You could lose out on the child and dependent care credit if you stopped paying for childcare in 2023 or if you paid for care for a non-disabled child who turned 13. (A dependent with a disability may qualify for the tax credit, regardless of age.)…”

 

 

Thing Two

 

Food For Thought On Long Term Care Insurance

 

From recent seminar slide notes on long term care insurance:

 

…70% of people turning age 65 can expect to use some form of long-term care during their lives. There are a number of factors that affect the possibility that you will need care:

 

Age: The older you are, the more likely you will need long-term care. The average life expectancy for someone reaching 65 is about 20 years [i.e., to approximately 85] and the likelihood of needing care increases by about 20% for each decade you live. Similarly, the older a person is, the more likely the care will be in a nursing home where expenses are greatest. The likelihood of a disability as we age includes:

• Ages 44-54: 22.6%

• Ages 55-64: 35.7%

• Ages 65-69: 44.9%

• Gender: Women outlive men by about five years on average, so they are more likely to live at home alone when they are older. On average, women need care longer (3.7 years) than men (2.2 years).

• Disability: Having an accident or chronic illness that causes a disability is another reason for needing long-term care. Between ages 40 and 50, on average, eight percent of people have a disability that could require long-term care services. 69 percent of people age 90 or more have a disability.

• Health Status: Chronic conditions such as diabetes and high blood pressure make you more likely to need care. Your family history such as whether your parents or grandparents had chronic conditions, may increase your likelihood. Poor diet and exercise habits increase your chances of needing long-term care.

 

Many people believe that the medical insurance they currently have will pay for all or much of their long-term care or, if not their insurance, Disability coverage available through Social Security. This belief is incorrect.

 

Health insurance and Medicare are designed to provide coverage for medical care. Long-term care is different from traditional medical care. Traditional medical care tries to treat or cure illnesses. Long-term care usually won't improve your medical condition, but it will help you maintain your lifestyle. It helps with routine daily activities, such as eating, getting around, and bathing. It can also help fi you need supervision, protection, or reminders to take medicines or perform other activities.

 

In general, health insurance (whether private insurance or Medicare) covers only very limited and specific types of long- term care, typically only for skilled, short-term, medically necessary care. The skilled nursing stay must follow a recent hospitalization for the same or a related condition and is limited to 100 days. Coverage of home care is also limited to medically necessary skilled care.

 

Most forms of private insurance do not cover custodial or personal care services at all and Medicare only offers coverage done in conjunction with skilled nursing care in the home.

 

Disability insurance, on the other hand, is intended to replace some of a working person's income when a disability prevents them from working. It does not cover either medical care or custodial care and it expires at age 65. While uncommon, there are disability insurance policies that will cover those over age 65, but the requirement to still be working would apply.

 

Long-term care insurance is not right for everybody. If a person has limited income such that paying premiums will be difficult, LTCi coverage is not normally the best approach. Nor should those with few assets buy an LTCi policy; such people will often have to rely on Medicaid, despite its drawbacks. One analyst set a minimum standard at $300,000 in assets over and above the value of a primary residence and at least $50,000 in annual income before purchasing LTCi makes evident sense.

Every situation is different, and each person must consider his own circumstances, take into account his own concerns and preferences, and weigh the costs and benefits of an LTCi policy…”

 

 

Thing Three

 

"The difference between ordinary and extraordinary is that little extra." -

Jimmy Johnson


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