Tax issues - helping pay parent's medical bills?

[audreyh1]

Sorry to impose on the FIRE group, but I'm not sure where to start searching the web on this topic. Would appreciate some references.

We expect to help pay for my mother-in-law's medical expenses (what is not covered by medicare). We don't want the step-dad to have to dip into his fairly modest inheritance, because he'll need that money as he gets older.

We can gift them money, of course, but I what if the expenses might exceed the gift exclusion for a given year?

Are there rules for how you handle this so no gift tax comes into the picture? Do we have to pay the medical bills directly, or can we just give them money to cover expenses?

Just trying to gather the information so that we can handle this in the best way.

Any reference web sites, etc. would be much appreciated.

Audrey

 

[kaneohe]

http://www.americancentury.com/workshop/articles/tax_considerations.jsp

search "gift tax and medical bills" and you might find more direct links. sounds like you need to pay directly to institution providing services.

 

[Martha]

Yes, if you pay the medical bills directly to the provider you shouldn't have a gift problem.

 

[d]

what is the expected level of annual expense? 

you and your husband can each give to each of your in-laws $12k/yr ... i.e. you could gift as much as $48k/yr without worrying about gift taxes.  the actual medical expenses if paid by them would be deductable from their taxes (after 7.5% of their adjusted gross income).

if you paid the medical expenses directly, there would be no gift tax involved, but you could not deduct the expense from your taxes, nor they from theirs.

 

[Martha]

Another thing to look at if you are paying more than 1/2 a parent's support is whether you can claim them as a dependant.

 

[audreyh1]

Thanks so much for the information and advice.    It looks pretty straightforward.  I'll read the appropriate IRS documents (gifts & medical deductions).

I think I read on the Intuit site that you actually CAN deduct medical expenses (not covered by insurance) that you pay for a relative on your tax return.
Edited to add: Ooops - it looks you have to have provided over half of the parents support for a given year to deduct the medical expenses.  That complicates things!

Not sure whether the expenses will qualify them as a dependent for us yet.  Not counting on that in the planning.

We really have no idea how high the annual expenses might be.  We already gift them some money annually, so we just have to keep an eye on things and arrange to pay some of the bills directly if things start to seriously add up.

Audrey