The New World of MAGI Income

Tricia BrooksArizona Assister Training

September 2014

Warning!

o This training gets into the policy weeds of how household and income are counted under MAGI!

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What is MAGI-based eligibility?

• Modified Adjusted Gross Income- Not a number; it’s a methodology for

determining eligibility- Determines who’s counted in the

household and whose income counts toward eligibility• Rooted in tax law

• Replaced prior Medicaid income, disregards and household counting rules as of January 1, 2014

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Why new rules?

• Eliminate potential gaps between coverage options by aligning eligibility for premium tax credits (PTCs) with Medicaid

• Simplify the eligibility process and provide consistent rules across states

• Move toward real time eligibility with reliance on electronic data sources

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Which groups are subject to MAGI?

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People with disabilities and seniors needing

long term care

Parents and caretaker relatives

Pregnant women

Children

Newly eligible adults(aka Medicaid expansion)

Medicaid/ Arizona AHCCCS Eligibility

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Income Limit

Children < 1 year 152% FPL

Children 1 – 5 146% FPL

Children 6 - 18 138% FPL

Pregnant Women 161% FPL

Adults 138% FPL

States were required to convert old standards to

new MAGI rules.

MAGI moves toward electronic, real-time eligibility

determination.

Eligibility Criteria Verification

Citizenship/Immigration Status Electronic *

Income Electronic *

Age/DOB Self-Attestation **

Household Self-Attestation **

SSN Electronic *

Pregnancy Self Attestation **

State Residency Electronic *

* If cannot be verified electronically, paper documentation required.** If discrepancy between electronic sources, paper documentation required.

Three Steps for Assessing Eligibility

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• Rules are different for tax-filers and non-filers.• Only tax-filers are eligible for PTCs/CSRs, and married

couples must file jointly.• Tax-filer rules apply to both PTCs/CSRs and Medicaid.• Non-filer rules apply only to Medicaid. • There are 5 exceptions for tax filers or tax dependents;

non-filer rules apply to Medicaid in these situations.• Household size may be different for different members of

the family, and different for Marketplace vs. Medicaid.

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Step 1• Key Points about Household Size

Tax Filers: Household Composition• Household = all

individuals in the tax filing unit-Tax-filer-Spouse -Tax dependents• Qualifying child• Qualified

relatives-Exclude “not

lawfully present” in the household

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Non-Filers: Household Composition

Adults– Adult– Spouse – Children under 19

• Biological, adopted or step– Would not include qualified

relatives

Children– Child– Child’s parents (including

step-parents)– Children’s siblings

• Biological, adopted or step– Child’s spouse if married and

living with the child.– The child’s children, if living

with the child.

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General Rule: Household = all individuals living together who are related (more like old Medicaid rules)

Exceptions to tax-filer rules for Medicaid: Non-filer rules apply in these situations

① Child claimed on non-custodial parent taxes

② Child living with unmarried parents or parents filing separate tax returns

③ Any tax dependent (child or qualified relative) claimed by someone other than a parent or spouse

④ Married couples living together filing separately

⑤ Pregnant women

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① Child (under 19) claimed as tax dependent by non-custodial parent

• Medicaid eligibility for the child only is based on the custodial parent’s household.

• For premium tax credits, the child’s eligibility is based on the income of the parent who claims the child.

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Example Exception 1 – Alan, Judith and Jake

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Alan and Judith are divorced and both file taxes. They have a son, Jake, who lives with Alan, but is claimed by Judith on her tax return.

Marketplace Household Medicaid Household

Alan Household of 1, Alan Household 1, Alan

Jake Household of 2, Judith and Jake Household of 2, Alan and Jake

Judith Household of 2, Judith and Jake Household of 2, Judith and Jake

② Child living with both parents who are unmarried or file taxes separately

• Both parents are included in the child’s household for Medicaid

• For PTCs, the child’s eligibility is based on the tax filing parent’s household and income if the parents are unmarried

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• If married filing separately, the family is not eligible for PTC

Example Exception 2– Ross and Rachel

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Ross and Rachel are not married, and file separate tax returns. They live together with their daughter, Emma. Ross claims Emma on his tax return.

Marketplace Household Medicaid Household

Ross Household of 2, Ross and Emma Household of 2, Ross and Emma

Emma Household of 2, Ross and Emma Household of 3, Ross, Rachel and Emma

Rachel Household of 1, Rachel Household of 1, Rachel

③ Individual claimed as tax dependent by someone other than a parent or spouse

• Qualifying child - For example, child living

with a grandparent• Other qualifying relative

- For example, grandmother living with son’s family

• For Medicaid, use non-filer rules for that person only

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Example Tax Dependent – Will Smith/Banks

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Will Smith lives with his Uncle Phillip’s family. The Banks have 3 biological children. Will is claimed as a tax dependent on the Banks’ tax return, in addition to the other 5 members of the family.

Marketplace Household Medicaid Household

Will Household of 6, Will and all 5 Banks Household of 1, Will

Banks Family Members

Household of 6, Will and all 5 Banks Household of 6, Will and all 5 Banks

④ Married couples living together but filing taxes separately

• For Medicaid, married couples living together are included in each other’s household regardless of whether they are tax-filers or non-filers

• Married couples must file jointly to qualify for PTCs

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Marketplace Household Medicaid Household

Lucy Not eligible, not filing jointly Household of 2

Ricky Not eligible, not filing jointly Household of 2

⑤ Pregnant Women• For Medicaid, the pregnant woman’s

household includes the the number of babies expected

• However, for other family members, Arizona only counts the pregnant woman as one person

• If the pregnant woman files taxes or is a tax dependent, tax-filer rules apply, you just increase the household size for the number of babies in determining her eligibility

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Ross and Rachel are having another babyRoss and Rachel are not married. They live together and have one child, Emma, and Rachel is pregnant. Ross claims Emma on his taxes and Rachel files separately.

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Marketplace Household Medicaid Household

Ross Household of 2, Ross and Emma Household of 2, Ross and Emma

Emma Household of 2, Ross and Emma Household of 3, Ross, Rachel and Emma

Rachel Household of 1, Rachel Household of 2, Rachel plus baby

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Step 2A

• Who’s income counts?

Generally, the MAGI income of all individuals must be counted

toward household income

Income of tax dependents is NOT included if they are not

EXPECTED to file taxes.

The filing threshold for children for 2014 is $6,100 for earned income, $1,000 for unearned income; for other tax dependents, it’s $3,950

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Step 2B

• What income counts?

Adjusted Gross Income from line 31 on 1040

+ Excluded foreign income

+ Tax exempt interest+ Non-taxable Social

Security benefits

= MAGIAdjusted Gross Income (AGI)Adjustments

to Income

Taxable Income Sources

What income counts?Counted

• Wages and tips• Unemployment• Pensions and annuities• Net business/farm income• Dividends and taxable

interest• Alimony received• Rents and royalties received• Social Security retirement

or survivor benefits (both taxable and non-taxable)

Not Counted• TANF• SSI (disability)• Child support• Gifts• Qualified scholarship (for

tuition only)

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What deductions/adjustments count?

Most common:• Alimony paid• Student interest• IRA contribution• Moving expenses • Other deductions

are listed (lines 23-35 on 1040)

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Changes to How Income is Counted in MedicaidINCOME SOURCE PRE-MAGI MEDICAID MAGI MEDICAIDSelf-employment Not all business expenses (i.e.

depreciation) were deductibleNET INCOME/PROFITCounted with all tax deductible expenses and business losses (line 31 of schedule C or line 34 from schedule F)

Pre-tax deductions or salary deferrals (flex spending accounts, childcare, 401(k))

Included in gross income Not included in gross income

Child support received Counted as income Not counted as income

Alimony paid Not deducted from income Deducted from income

Veterans’ benefits Counted as income Not counted as income

Workers’ compensation Counted as income Not counted as income

Step-parent income State option but not always counted toward child’s eligibility

Counted as household income

TANF and SSI Counted as income Not counted as income

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Differences in how income is calculated for Medicaid that do not apply to PTCs/CSRs

• For new applicants, Medicaid looks at “current monthly income”• Scholarships and other education awards not counted• Native American income does not count• Lump sum payments counted only in month received

• PTC eligibility is based on “projected annual income” for applicable tax year

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Deduct pre-tax contributions/salary deferralswhen reporting income

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Certain employee contribution to benefits that are deducted from wages before federal taxes are calculated. Taxes are calculated on the reduced wage and are therefore lower.

Common pre-tax contributions

Dependent Care Medical Flex Spending Accounts

401(k) or 403(b) Retirement Accounts

How to identify pre-tax deductions?

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On Pay Stubs:Difference between gross wages and gross “taxable” wages.

Or list of deductions taken.

Examples – Pre-tax Deductions

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Example 1Mary is a single Mom with a 2-year daughter. She earns $1,900 per month (144% FPL) and receives $500 per month in child support. She also has $200 per week taken out for child-care. •Is Mary eligible for AHCCCS?

Example 2John is a single male. He earns $45,000 per year but contributes $5,000 to his retirement account.

•What is John’s income based on MAGI?

Example 3John is single and earns $17,000 (146% FPL). The company he works for doesn’t have a retirement account but he deposits $100 each month into an IRA

•What is John’s income based on MAGI?•Is John eligible for AHCCCS?

How about Social Security income?For adults…• All social security benefits (not

SSI) whether taxable or not count toward MAGI

⁻ Social security retirement ⁻ Social security survivor benefits⁻ Social security disability income

(SSDI)⁻ Could mean adult who is not

required to file taxes, is over Medicaid income threshold, and would need to file taxes to get PTCs

For children…• When a child is claimed as a

tax dependent by someone other than a parent or spouse, the child’s survivor benefits and SSDI count toward household income only if the child has other income that requires them to file taxes.

• If child is in own household, (i.e. Medicaid exceptions) all of his/her income counts toward his/her eligibility

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Social Security Income Examples

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Example 1Mary earns $800 per month (82% FPL) working part-time and receives $600 per month (combined 144% FPL) in social security survivor benefits. She does not file taxes. •Is Mary eligible for AHCCCS?•What about PTCs?

Example 2Same scenario but Mary has a 17-year old daughter. Her MAGI of $1,400 = 106% FPL for family of 2. Jane, who also receives $600 per month in social security survivor benefits. Jane does not earn any income and does not file taxes.

•Does Jane’s SS count?

Example 3Same scenario as Example 2. But Jane also earns $600 per month working part-time after school. Jane’s earned income and SS benefits, plus Mary’s total income = 198% FPL.

•Is Mary eligible for AHCCCS? •What about Jane?

Georgetown McCourt School of Public PolicyHealth Policy Institute

Center for Children and FamiliesCenter on Health Insurance ReformsTricia Brooks

Tricia.Brooks@georgetown.edu

Website: http://ccf.georgetown.edu/

Say Ahhh! a child health policy blog: http

://ccf.georgetown.edu/blog/

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JoAnn VolkJoann.Volk@georgetown.edu

Website: http://chir.georgetown.edu/

CHIR Blog:http://chirblog.org/