The
"Med-Ed" Exemption from Gift Tax
Lisa
Nachmias Davis
Attorney
at Law
davis@sharinglaw.net
www.sharinglaw.net
READ
THE DISCLAIMER!![*]
Direct payments for
someone's educational or medical expenses are exempt from the
federal
gift tax, without regard to the annual exclusion limitation
($12,000/year in
2008). In
What's the authority for
this statement?
Section 2503(e)(2) of
the Internal Revenue Code excludes from the definition of a
"gift" subject to tax "any amount paid on behalf of an
individual (A) as tuition to an educational organization described
in section
170(b)(1)(A)(ii) for the education or training of such individual, or
(B) to
any person ["person" includes corporations] who provides medical care
(as defined in section 213(d)) with respect to such individual as
payment for such
medical care."
"Tuition"
seems straightford enough.
Books, etc. will not qualify because the
payment is not for "tuition."
The
A little more tricky is
the term "medical care." It
covers more than you might think! What
does
the Tax Code mean when it says "medical care (as defined in section
213(d))"?
The short answer --
anything that the person getting the "care" could have been entitled
to deduct (above the usual 7½% threshold) as a medical expense on his
or her
income tax return. That does include
doctor, nursing home, and hospital bills, travel to get the care (e.g.
the
airfare from California to Sloane-Kettering if that's the only
place to
get the procedure done), prescription medicine, and health insurance,
but does
not include cosmetic surgery except in certain cases (following an
injury;
correcting a deformity; etc.) and only limited amounts for long-term
care
coverage. Whether or not it includes
nursing home or assisted living expenses may depend on the person's
condition.
The long answer starts
here, and if your eyes glaze over, you can always check with your
accountant or
tax-preparer:
Internal
Revenue Code Section 213(d) Definitions
For purposes of
this section -
(1) The term
"medical care" means amounts paid -
(A) for the diagnosis, cure,
mitigation, treatment, or prevention of disease, or for the purpose of
affecting any structure or function of the body,
(B) for transportation primarily for
and essential to medical care referred to in subparagraph (A),
(C) for qualified long-term care
services (as defined in section 7702B(c)), or
(D) for insurance (including amounts
paid as premiums under part B of title XVIII of the Social Security
Act,
relating to supplementary medical insurance for the aged) covering medical care referred to in
subparagraphs (A) and (B) or for any qualified long-term care insurance
contract (as defined in section 7702B(b)).
In the case of a qualified long-term care insurance contract (as
defined
in section 7702B(b)), only eligible long-term care premiums (as defined
in
paragraph (10)) shall be taken into account under subparagraph (D).
(2) Amounts paid
for certain lodging away from home treated as paid for medical care.
-
Amounts paid for lodging (not lavish or extravagant under the
circumstances)
while away from home primarily for and essential to medical care
referred to in
paragraph (1)(A) shall be treated as amounts paid for medical care if -
(A) the medical
care referred to in paragraph (1)(A) is provided by a physician in a
licensed
hospital (or in a medical care facility which is related to, or the
equivalent
of, a licensed hospital), and
(B) there is no
significant element of personal pleasure, recreation, or vacation in
the travel
away from home.
The amount taken into
account under the preceding sentence shall not exceed $50 for each
night for
each individual.
(3) Prescribed
drug. - The term "prescribed drug" means a drug or biological
which requires a prescription of a physician for its use by an
individual.
(4) Physician.
- The term "physician" has the meaning given to such term by section
1861(r) of the Social Security Act (42 U.S.C. 1395x(r)).
(5) Special rule
in the case of child of divorced parents, etc.
- Any child to whom section
152(e) applies shall be treated as a dependent of both parents for
purposes of
this section.
(6) In the case of an
insurance contract under which amounts are payable for other than
medical care
referred to in subparagraphs (A), (B), and (C) of paragraph (1) -
(A) no amount shall be treated as
paid for insurance to which paragraph (1)(D) applies unless the charge
for such
insurance is either separately stated in the contract, or furnished to
the
policyholder by the insurance company in a separate statement,
(B) the amount taken into account as
the amount paid for such insurance shall not exceed such charge, and
(C) no amount shall be treated as
paid for such insurance if the amount specified in the contract (or
furnished
to the policyholder by the insurance company in a separate statement)
as the
charge for such insurance is unreasonably large in relation to the
total
charges under the contract.
(7) Subject to the
limitations of paragraph (6), premiums paid during the taxable year by
a
taxpayer before he attains the age of 65 for insurance covering medical
care
(within the meaning of subparagraphs (A), (B), and (C) of paragraph
(1)) for
the taxpayer, his spouse, or a dependent after the taxpayer attains the
age of
65 shall be treated as expenses paid during the taxable year for
insurance
which constitutes medical care if premiums for such insurance are
payable (on a
level payment basis) under the contract for a period of 10 years or
more or until
the year in which the taxpayer attains the age of 65 (but in no case
for a
period of less than 5 years).
(8) [Not relevant] ….
(9) Cosmetic surgery.
-
(A) In general. - The term
"medical care" does not include cosmetic surgery or other similar
procedures, unless the surgery or procedure is necessary to ameliorate
a
deformity arising from, or directly related to, a congenital
abnormality, a
personal injury resulting from an accident or trauma, or disfiguring
disease.
(B) Cosmetic surgery defined. - For
purposes of this paragraph, the term "cosmetic surgery" means any
procedure which is directed at improving the patient's appearance and
does not
meaningfully promote the proper function of the body or prevent or
treat
illness or disease.
(10) Eligible
long-term care premiums. -
(A) In general. - For purposes of
this
section, the term "eligible long-term care premiums" means the amount
paid during a taxable year for any qualified long-term care insurance
contract
(as defined in section 7702B(b)) covering an individual, to the extent
such
amount does not exceed the limitation determined under the following
table
[NOTE -- THIS IS ADJUSTED ANNUALLY
In the case of an
individual
with an attained age
before the
The limitation
close of the taxable
year of:
is:
40 or less
$ 200
More than 40 but not
more than 50
375
More than 50 but not
more than 60
750
More than 60 but not
more than 70
2,000
More than 70
2,500
.
* *
*
(11) Certain payments
to relatives treated as not paid for medical care. - An amount paid for
a
qualified long-term care service (as defined in section 7702B(c))
provided to
an individual shall be treated as not paid for medical care if such
service is
provided -
(A) by the spouse of the individual
or by a relative (directly or through a partnership, corporation, or
other entity)
unless the service is provided by a licensed professional with respect
to such
service, or
(B) by a corporation or partnership
which is related (within the meaning of section 267(b) or 707(b)) to
the
individual.
For purposes of this
paragraph, the term "relative" means an individual bearing a
relationship to the individual which is described in any of
subparagraphs (A)
through (G) of section 152(d)(2). This paragraph shall not apply for
purposes
of section 105(b) with respect to reimbursements through insurance.
=============
In addition to the
Internal Revenue Code,
·
hospital services
·
nursing services
(including nurses' board where paid by the
taxpayer)
·
medical,
laboratory, surgical, dental and other diagnostic and
healing services
·
X-rays
·
medicine and drugs
·
artificial teeth or
limbs
·
ambulance hire
·
eye glasses
·
a seeing eye dog
·
artificial teeth
and limbs
·
a wheel chair
·
crutches
·
an inclinator or an
air conditioner which is detachable from the
property and purchased only for the use of a sick person
·
in-patient hospital
care (including the cost of meals and lodging
therein)
·
institutional care
for a person who is mentally ill and unsafe when
left alone
·
the cost of
attending a special school designed to compensate for
or overcome a physical handicap, in order to qualify the individual for
future
normal education or for normal living, such as a school for the
teaching of braille or lip reading
·
cost of care and
supervision, or of treatment and training, of a
mentally retarded or physically handicapped individual at an institution
[*] DISCLAIMER:
THIS
INFORMATION
IS NOT PROVIDED AS LEGAL ADVICE