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New client - retired - wife passed away in 2014. Closed out many pensions and IRAs to cover medical expenses, yet owes IRS $18,000.

A new client came into my office last week. The client is retired (mid-70s). His wife was extremely ill, and passed away in late April, 2014. The wife had taken out (basically closing) several pension and IRA accounts to cover medical expenses. Both husband and wife are on Medicare.

Total pension/IRA distributions for the year were $92,000. Rental income (after expenses) $9,775. SSA (combined) just under $18,000.

Total income was about $120,000. Not enough deductions to itemize, so standard deduction is taken. $14,000 of SSA benefits are taxable. Total tax owed to the IRS is just under $18,000.

Why are the SSA benefits taxable? Both taxpayers are in mid-70s.
social security benefits
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Tax Professional Answers

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John Stancil
Social security benefits are taxable on a sliding scale, depending on the modified adjusted gross income of the couple. The amount of SS that is taxable can be zero, 50 or 85%. Since their MAGI exceeded $44,000 they fall in the 85% range. What I don't understand is that if these withdrawals were made to cover medical expenses, why can't they itemize? Their threshold for itemizing medical is only about $9,000 given your numbers.
Leave a Comment 340 weeks ago


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