The
"Med-Ed" Exemption from Gift Tax
Lisa
Nachmias Davis
Davis
O'Sullivan & Priest
LLC
davis@sharinglaw.net
www.sharinglaw.net
READ THE DISCLAIMER!!
(last
updated October 4, 2022)
Direct payments for someone's
educational or medical expenses are exempt from the federal
gift tax,
without regard to the annual exclusion limitation ($16,000/year in
2022).
In Connecticut, that means they are also exempt from Connecticut gift
tax. (Keep in mind that a CT resident may give $9.1 million in
TAXABLE
gifts without paying a dime of gift tax -- the federal limit is now (
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 |
The limitation is: |
$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 but
not more than 80 |
|
$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
THIS
INFORMATION IS NOT PROVIDED AS LEGAL ADVICE