Pension Does Not Limit Spousal Medicare Benefits
Q: My husband is entitled to both Social Security benefits and a state university pension upon his retirement. I have a state teacher’s pension and insufficient contributions to the Social Security system to have my own Social Security benefits. I understand that my teacher’s pension offsets any spousal benefits I would be entitled to from my husband’s account. But does this also mean that I am not entitled to share in his Medicare? --C.M.H.
A: No, say the folks at the Social Security Administration. You are entitled to Medicare benefits.
Here’s the reasoning: Technically you are eligible for spousal Social Security benefits as the wife of a recipient. However, because you receive a public employees pension as a retired teacher, your spousal benefits were reduced to the point that they were zeroed out. But this does not eliminate your right to Medicare benefits.
Deferring Tax Payment on One-Time Income
Q: For years my income tax obligation has been about $10,000. But this month I received a lump sum of deferred interest that will bring my 1990 tax bill to more than $40,000. The local Internal Revenue Service agent told me that I can pay my usual $10,000 estimated tax, and pay the remainder next April when I file my tax form. Did I understand this correctly? --A.R.
A: Yes, you understood correctly, and what the IRS agent told you is correct.
To avoid a penalty for failing to prepay your income tax obligation sufficiently, the IRS says you must have withheld or prepay an amount equal to either 90% of your total tax obligation for the year, or 100% of your tax obligation for the previous year. So, if you prepay $10,000, you’ll be safe.
Capital Gains Are Taxed When Taken
Q: In 1988 I sold a commercial property using an installment sale. Because the special capital gains tax rate had been eliminated, my income tax rate was 28% on the initial installment. Next year the note is due and I will get the proceeds from the remainder of the sale. What if, as President Bush wants, there is a new capital gains tax rate that is lower than 28%? Will I be required to pay a tax rate of 28% because that was the rate in effect when the sale was made, or would I get the new lower rate? --R.T.
A: To be honest, our experts aren’t sure because the new capital gains tax proposals are still in the conceptual stage. So until there is a law, no one knows what rate will be in effect, and when that rate will take effect.
However, you should know that capital gains are typically taxed at the rate in effect when the gains are taken, not when the sale is made. Still, there would be nothing to prevent Congress from exempting previous sales or from making the effective date of the new rate apply to sales after some date in the future.
Reporting Income From Inherited CD
Q: My father had three certificates of deposit at a savings and loan when he died. He had paid estimated income tax on the earnings from these accounts for the first three quarters of the year, and when I inherited the accounts I paid the estimated tax for the remainder of the year. However, the bank sent me a single Form 1099 covering both the interest I received in the final quarter of the year and the interest my dad received. What should I have done? The savings and loan would not send two separate forms. --S.W.
A: Our advisers say you were entitled to two 1099 forms: one for you and one for the estate of your father. But no matter.
You should simply have reported to the IRS the interest you actually received, noting that the remainder of the amount shown on the form was received by your father before his death and will be reported by his estate. The executor of your father’s estate should have reported that amount. If the IRS asks you any questions about the single 1099 you file, explain that the savings and loan did not cooperate with your request for two forms.
If you want to make waves at the savings and loan, you could, but it probably won’t get you anywhere. Besides, you really cannot show that you have been penalized. So you know what they say: no harm, no foul.
