The New Year brings new resolutions, new beginnings, and of course, new laws federal and state laws.

 

Patient Protection in Maryland

One of the new laws that took effect January 1, 2022 brings changes to hospital billing departments in Maryland. Hospitals are now prohibited from taking certain actions when collecting debts. These actions include: (1) requesting a lien against a patient’s primary residence, (2) requesting the issuance of a body attachment or an arrest warrant against a patient, (3) garnishing a patient’s wages if that patient is eligible for free or reduced-cost care, (4) making a claim against the estate of deceased patient if the deceased patient was known by the hospital to be eligible for free care or if the value of the estate after tax obligations are fulfilled is less than half of the debt owned, (5) filing an action against a patient before 180 days of the initial bill’s issuance, (6) filing an action against a patient until the hospital determines whether the patient is eligible for free or reduced-cost care.   If a hospital hires an agency to collect a patient’s debt, the hospital and the debt collector are both responsible for meeting the hospital’s debt collection requirements.

The legislation also requires that hospitals give their patients information on installment payment plans to pay off any incurred medical debt and provide additional   resources to patients.

 

Increased Social Security Payments and Taxable Earnings for Social Security.

The Social Security Act ties the annual cost-of-living adjustment to the increase in the Consumer Price Index, which is determined by the Department of Labor.  The Social Security Administration in late-2021 announced a 5.9% increase for 2022.

Additionally, based on the increase of average wages, the amount of earnings subject to the Social Security tax (the “taxable maximum”) increased in January of 2022 from $142,800 to $147,000.

 

Larger Federal Estate and Gift Exemption Amount

The unified federal estate and gift tax exemption enables individuals during their lifetime and at their death to give away assets free of federal estate and gift taxes.  The amount of the exemption is indexed for inflation.  In 2022 it increased from $11.7 million, ($23.4 million for married couples) to $12.06 million ($24.12 million for married couples).

Given the historically high federal exemption amount, some may wonder why they should be concerned about estate and gift taxes.  Besides a large increase in the value of real estate and investments, there are a couple of reasons.  One is that unless Congress acts before 2026, the amount of the exemption will fall to approximately $6 million ($12 million for married couples).   The precise number will depend on the rate of inflation.   Another reason is that the amount exempt from Maryland’s Estate Tax is $5 million ($10 million for married couples), and it is not indexed for inflation and may after 2021 be reduced by Maryland’s General Assembly.

There, are, however, a number of tools taxpayers can use to reduce the estate tax “bite”.  A common technique is making gifts to family members.  By making lifetime gifts, taxpayers reduce the amount subject to estate taxes at their death.  If that amount is less than the federal exemption amount, no federal estate tax is due.

 

Higher Annual Gift Tax Exclusion

The annual gift tax exclusion is the amount that can be given away in a calendar year without reducing your gift and estate tax exclusion and without needing to be reported to the Internal Revenue Service.   The exclusion is per year and per recipient.  The exclusion amount is tied to inflation and in 2022 increased from $15,000 to $16,000.  Thus, in 2022 a person can give each child, grandchild, great grandchild, sibling or other person up to $16,000 without reducing their estate tax exclusion or needing to file gift tax return.  Spouses can combine their exclusions.  Thus, by combining their exclusions, a married couple could give any number of individuals $32,000 without reducing their exemptions or filing a return.

Using annual gifting it is possible to transfer significant wealth to younger family members free of taxes and or reporting requirements.  For example, a couple with two children and four grandchildren, could give each child and each grandchild $32,000 in 2022 for a total of $192,000 and then in January of 2023 give away another $192,000.

Besides annual gifts, there are other tax advantaged ways to benefit family members.  If you have questions or need assistance with your estate planning, please contact Paul Schwab or Jonathan Azrael.