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SMART MONEY: Private contractor must pay tax as both employee, employer

by on June 22, 2014 1:50 AM

Private contractor must pay tax as both employee and employer

DEAR BRUCE: My husband was recently hired by a friend to drive his truck and they split the commission. His friend owns a legitimate business, but there are no taxes taken from my husband’s check for Uncle Sam. I tried looking into how we would go about paying taxes here in Florida, because I would like to do it monthly or weekly, so there isn’t a large bill when it’s tax season. Please help. — Reader

DEAR READER: Your husband’s friend is apparently not withholding any monies, which means he is hiring your husband as a “private contractor,” and he is also not contributing anything to Social Security, etc. You can do this on a bi-weekly basis. This means also paying your share of the Social Security as the employer and Florida unemployment tax.

Simply put, if you make $100, you will have to pay approximately 7½ percent of your money to Social Security as the employed person, and then you have to pay an additional 7½ percent as the employer, for a total of approximately 15 percent, plus Florida unemployment tax. There is no way to avoid that.

DEAR BRUCE: I have a question about my mom gifting to me and my brother. She is in a nursing home, but has enough money coming in to her checking account from retirement accounts and Social Security that she pays for the nursing home herself. Medicare only kicks in when she is hospitalized and for doctors’ appointments.

Someone told us that Medicaid can go back five years if her money is gone and she has to have Medicaid pay for her nursing home care. Could you tell me if this is correct? — Reader

DEAR READER: You say she is in a nursing home, but has enough money coming in that she pays for the nursing home herself. Medicare only kicks in when she needs hospitals and doctor appointments. The likelihood is that she is fully covered.

That “someone told us that Medicaid can go back five years if her money is gone” is essentially true, but Medicaid is not Medicare, and Medicaid doesn’t start kicking in until all your assets are exhausted. Your mother is paying her bills, so no Medicaid liability is being built up. So far, everything is under control.


DEAR BRUCE: My husband and I, as individuals, created and placed all of our assets in revocable living trusts. Does that protect our assets? Or do we still have to spend all of our liquid assets and transfer ownership of real property to our heirs?

We both have long-term care policies. But the daily allowance from those policies will not be enough to cover the current daily charge at nursing homes today. We live in Georgia, where it would be necessary to “liquidate” at least five years before it may be necessary to be placed in a nursing home. — C.R.

DEAR C.R.: The word “revocable” means you can yank your assets out at any time. Whether that gives you any solid protection against assets being attached to cover monies that Medicaid has advanced is another question — one that will have to be answered on a specific basis.

On balance, I don’t think you are particularly well covered, but you do have the ability, because it is a revocable trust, to change to a will. It gives you more coverage, meaning more protection for your assets in case you have used (at least in theory) all of your assets and then are covered by Medicaid advances, which is essentially what they are.

As to the five-year period, I believe you are correct: Five years in Georgia is the look-back period. Whether or not you wish to explore giving away your assets is quite another matter. I very seldom endorse that approach if a better way is available.

Seek a competent attorney in Georgia to help you with this matter.

DEAR BRUCE: What is the 70 1/2 age rule? — Reader

DEAR READER: This is very simple. If you have monies that you wish to put away in a savings plan such as a 401(k), at the age of 70 1/2, you will have to start drawing the money out. The government can give you the specific number amount.

The idea of the rule, and don’t choke on this one, is essentially to calculate, when you reach 70 1/2 years old, how many more years you are going to live, and set the withdrawal amount so that the money runs out around the same time you drop dead.

If you think that works, I have a bridge I want to sell you, but that’s the system.

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