My question is, can she put just enough money aside to pay those taxes without Medicaid taking it from her? how else will she have the money to pay the taxes when they are due?
Lealonnie is 1000% correct. If your mother took the distribution out this year, then get thee to a CPA ASAP, and get guidance from him/her, rather than rely on an anonymous internet forum. They can set up estimated taxes for mom, paid right away from the proceeds, and then explained to Medicaid, should it come to that. It will also lessen any tax burden to pay out next year, when she might not have the funds available to settle the tax bill.
Shellarell, If I understand you right she is paying for herself right now, but will shortly run out of money and be on Medicaid. She got a lump sum from the annuity and will be found to need to pay taxes on this (or another poster says just the interest) next April. You are worried that Medicaid will see this “set aside” money and take the tax money she has set aside for next April, leaving her with a big tax bill she can’t pay.
The short version is, related to one another poster said, you need to get that money into uncle Sam’s hands now. It would’ve/could’ve/should’ve been withheld at the moment the annuity was cashed out, just as another poster said. But if not, uncle Sam is perfectly happy to take tax money in advance rather than wait until April for it. In fact that’s what withholding is, and you can do that yourself manually instead of having it be part of a paycheck or a distribution.
Most people choose to hold onto the money so they get interest, but in your case it *might* make sense to move it out of her accounts so Medicaid doesn’t inappropriately think it is an asset.
You could figure out roughly what your mom’s income for the year will look like with the annuity and other sources, figure out how much tax she will need to pay roughly, and then the IRS online has a way of making tax payments for year 2024 at any time. Then send it in, by mail or e-check direct from your account. It’s **very likely** you need tax advice on this as you also don’t want to overpay and then get a bunch of money back either. Tax specialist can tell you what the income tax burden will be, what the rate will be, etc.
I’ve seen this kind of manual payment-in-advance happen after a big bonus other windfall and didn’t want to get penalties for not withholding enough, or just to avoid an ugly tax bill a year later.
If mom liquidated an annuity to PAY for AL, then where does Medicaid come in???
She owes tax on the interest only that was earned on the annuity. When she cashed out, the insurance company would've asked her how much federal and state tax she wanted THEM to withhold from her payout check? They include a chart of what % tax is owed based on income. Remember, her income INCREASES for this year by the entire amount of the annuity she cashed out. Thats the tricky part! I didn't add the annuity value into my income when I cashed mine out in Jan, so now I'm paying estimated taxes 4x this year to avoid penalties and interest with the IRS next year 🙄
Your mom owes the state and federal taxes on the interest the annuity earned, period. Make sure they're paid and see the tax accountant with questions or to get the forms to pay estimated taxes now so mom isn't facing penalties and interest charges next year, if she hasn't paid the taxes when cashing out. The insurance company NEVER tells us what to do or offers advice. Its up to US to get tax advice or flounder around with unexpected penalties when Uncle Sam comes sniffing around! The government wants their cut regardless of medical issues or any other problems we may be having! The only way to have avoided taxes on an annuity was to have taken the monthly payments for life option instead of the lump sum payment.
The short version is, related to one another poster said, you need to get that money into uncle Sam’s hands now. It would’ve/could’ve/should’ve been withheld at the moment the annuity was cashed out, just as another poster said. But if not, uncle Sam is perfectly happy to take tax money in advance rather than wait until April for it. In fact that’s what withholding is, and you can do that yourself manually instead of having it be part of a paycheck or a distribution.
Most people choose to hold onto the money so they get interest, but in your case it *might* make sense to move it out of her accounts so Medicaid doesn’t inappropriately think it is an asset.
You could figure out roughly what your mom’s income for the year will look like with the annuity and other sources, figure out how much tax she will need to pay roughly, and then the IRS online has a way of making tax payments for year 2024 at any time. Then send it in, by mail or e-check direct from your account. It’s **very likely** you need tax advice on this as you also don’t want to overpay and then get a bunch of money back either. Tax specialist can tell you what the income tax burden will be, what the rate will be, etc.
I’ve seen this kind of manual payment-in-advance happen after a big bonus other windfall and didn’t want to get penalties for not withholding enough, or just to avoid an ugly tax bill a year later.
She owes tax on the interest only that was earned on the annuity. When she cashed out, the insurance company would've asked her how much federal and state tax she wanted THEM to withhold from her payout check? They include a chart of what % tax is owed based on income. Remember, her income INCREASES for this year by the entire amount of the annuity she cashed out. Thats the tricky part! I didn't add the annuity value into my income when I cashed mine out in Jan, so now I'm paying estimated taxes 4x this year to avoid penalties and interest with the IRS next year 🙄
Your mom owes the state and federal taxes on the interest the annuity earned, period. Make sure they're paid and see the tax accountant with questions or to get the forms to pay estimated taxes now so mom isn't facing penalties and interest charges next year, if she hasn't paid the taxes when cashing out. The insurance company NEVER tells us what to do or offers advice. Its up to US to get tax advice or flounder around with unexpected penalties when Uncle Sam comes sniffing around! The government wants their cut regardless of medical issues or any other problems we may be having! The only way to have avoided taxes on an annuity was to have taken the monthly payments for life option instead of the lump sum payment.
Also there is usually tax money removed from annuity when collected.
Also there is often no penalty on these financial things when the money is required for medical care or reasons.
Because of how difficult and complicated this can be I would involve the advice of an attorney.
Yes, capitol gains taxes will have to be paid. When the money is gone, then Medicaid may step in for a nursing home.