Can a Pension Be Counted Agains Medicaid?
Updated Baronial 2020
Financial eligibility for the premium tax credit, most categories of Medicaid, and the Children's Health Insurance Program (Chip) is determined using a tax-based measure of income called modified adjusted gross income (MAGI). The following Q&A explains what income is included in MAGI.
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How practise marketplaces, Medicaid, and Bit measure a person'due south income?
For the premium tax credit, most categories of Medicaid eligibility, and Chip, all marketplaces and state Medicaid and Scrap agencies decide a household'due south income using MAGI. States' previous rules for counting income continue to use to people who qualify for Medicaid based on historic period or inability or because they are children in foster care.
MAGI is adjusted gross income (AGI) plus tax-exempt interest, Social Security benefits non included in gross income, and excluded foreign income. Each of these items has a specific taxation definition; in most cases they tin can be located on an individual'due south tax return (see Effigy one). (In addition, Medicaid does not count certain Native American and Alaska Native income in MAGI.)
| FIGURE 1: Formula for Calculating Modified Adjusted Gross Income |
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What is adapted gross income?
Adjusted gross income is the difference betwixt an individual's gross income (that is, income from whatever source that is non exempt from tax) and deductions for certain expenses. These deductions are referred to as "adjustments to income" or "above the line" deductions. Mutual deductions include certain contributions to an individual retirement account (IRA) or wellness savings account (HSA) and payment of pupil loan involvement. Many income adjustments are capped or phased out based on income. IRS Publication 17 explains adjustments to income in more detail.
What types of income count towards MAGI?
All income is taxable unless it's specifically exempted past law. Income does not only refer to cash wages. It can come in the form of money, property, or services that a person receives.
Table one provides examples of taxable and non-taxable income. IRS Publication 525 has a detailed discussion of many kinds of income and explains whether they are subject to taxation.
| Table 1: Examples of Taxable Income and Non-Taxable Income (see IRS Publication 525 for details and exceptions) | |
| Examples of Taxable Income | |
| Wages, salaries, bonuses, commissions | IRA distributions |
| Annuities | Jury duty fees |
| Awards | Military pay |
| Back pay | Armed forces pensions |
| Alienation of contract | Notary fees |
| Concern income/Cocky-employment income | Partnership, estate, and Southward-corporation income |
| Compensation for personal services | Pensions |
| Debts forgiven | Prizes |
| Manager's fees | Punitive damages |
| Disability benefits (employer-funded) | Unemployment compensation |
| Discounts | Railroad retirement—Tier I (portion may be taxable) |
| Dividends | Railroad retirement—Tier II |
| Employee awards | Refund of state taxes |
| Employee bonuses | Rents (gross hire) |
| Estate and trust income | Rewards |
| Farm income | Royalties |
| Fees | Severance pay |
| Gains from auction of belongings or securities | Cocky-employment |
| Gambling winnings | Non-employee compensation |
| Hobby income | Social Security benefits (portion may be taxable) |
| Interest | Supplemental unemployment benefits |
| Involvement on life insurance dividends | Taxable scholarships and grants |
| Tips and gratuities | |
| Examples of Non-Taxable Income | |
| Help to Families with Dependent Children (AFDC) | Meals and lodging for the employer'southward convenience |
| Child support received | Payments to the beneficiary of a deceased employee |
| Damages for concrete injury (other than punitive) | Payments in lieu of worker'south compensation |
| Expiry payments | Relocation payments |
| Dividends on life insurance | Rental assart of chaplain |
| Federal Employees' Compensation Act payments | Sickness and injury payments |
| Federal income tax refunds | Social Security benefits (portion may be taxable) |
| Gifts | Supplemental Security Income (SSI) |
| Inheritance or bequest | Temporary Assistance for Needy Families (TANF) |
| Insurance proceeds (blow, prey, wellness, life) | Veterans' benefits |
| Interest on tax-free securities | Welfare payments (including TANF) and food stamps |
| Involvement on EE/I bonds redeemed for qualified college education expenses | Workers' compensation and like payments |
Is income subtracted from workers' paychecks equally a pre-tax deduction counted in MAGI?
No. Pre-tax deductions — such as health insurance premiums, retirement plan contributions, or flexible spending accounts — are taken out of wages past the employer. Since this income isn't taxed, it doesn't count towards a household's MAGI. The wages in Box ane of Form West-2 already exclude any pre-revenue enhancement benefits so they don't appear on the tax return as income or deductions.
Does MAGI count any income sources that are not taxed?
Yes. Some forms of income that are non-taxable or only partially taxable are included in MAGI and touch on financial eligibility for premium tax credits and Medicaid. Specifically:
- Tax-exempt interest. Interest on certain types of investments is not subject area to federal income tax but is included in MAGI. These investments include many country and municipal bonds, too as exempt-interest dividends from mutual fund distributions.
- Non-taxable Social Security benefits. . For many people, particularly those with no other source of income, Social Security benefits are not taxed at all. Nonetheless, if there is other income, a portion of the benefit might exist taxed. Social Security benefits are reported on Class SSA-1099 (the Social Security Benefit Statement) and, whether or not those benefits are taxable, the full amount is included in MAGI.
- Foreign income. Under section 911 of the Internal Revenue Code, U.Southward. citizens and resident aliens living outside the U.South. can exclude some earned income for tax purposes if they encounter sure residency or concrete presence tests. Any strange income excluded under this section must exist added back when computing MAGI.
Whose income is included in household income?
Household income is the MAGI of the tax filer and spouse, plus the MAGI of any dependent who is required to file a tax return. A dependent's income is only included if they are required to file taxes; if they file taxes for some other reason merely had no legal filing requirement, their income is not included.
Is a taxation dependent's income e'er included in household income?
If a dependent has a tax filing requirement, his or her MAGI is included in household income. Nether rules put in place by the December 2017 tax law, a dependent must file a taxation return for 2020 if she received at least $12,400 in earned income; $ane,100 in unearned income; or if the earned and unearned income together totals more than than the greater of $1,100 or earned income (up to $12,050) plus $350. In general, unearned income is defined as investment income; Supplemental Security Income (SSI) and Social Security benefits are not counted in determining whether a dependent has a tax-filing requirement. However, if the dependent does accept a tax filing requirement, the dependent's Social Security benefits volition be counted toward the household's MAGI.
If a dependent does non take a filing requirement merely files anyway — for example, to get a refund of taxes withheld from their paycheck — the dependent's income would non be included in household income.
What fourth dimension frame is used to decide household income?
Fiscal eligibility for the premium taxation credit and Medicaid is based on income for a specified "budget menstruation." For the premium tax credit, the budget period is the agenda year during which the advance premium tax credit is received. When determining eligibility for an advance premium tax credit, the bidder projects their household income for the entire calendar year.
Medicaid eligibility, however, is usually based on electric current monthly income. But for people with income that varies over the yr, states must consider yearly income if the person wouldn't exist eligible based on monthly income. For example, a seasonal worker might be over the income limit based on monthly income if they are employed when they apply simply would exist under the limit if their yearly income (including the months where they are unemployed) is considered. The Medicaid agency must determine eligibility using the yearly income. This prevents situations where people are considered ineligible for the Marketplace based on their yearly income and ineligible for Medicaid based on their monthly income. In addition, Medicaid also treats some lump-sum income differently than the market, by considering it only in the month received.
How does MAGI differ from Medicaid'south former rules for counting household income?
The MAGI methodology for calculating income differs significantly from previous Medicaid rules. Some income that Medicaid used to consider part of household income is no longer counted, such as kid support received, veterans' benefits, workers' compensation, gifts and inheritances, and Temporary Assistance for Needy Families (TANF) and SSI payments. Table 2 summarizes the differences between the former Medicaid rules and the new MAGI rules.
In improver, states can no longer impose asset or resources limits, and various income disregards have been replaced past a standard disregard equal to 5 percent of the poverty line. There are besides changes to who is included in a household and, therefore, whose income is counted.
| Table 2: Differences in Counting Income Sources Betwixt Quondam Medicaid Rules and MAGI Medicaid Rules | ||
| Income Source | One-time Medicaid Rules | MAGI Medicaid Rules |
| Cocky-employment income | Counted with deductions for some, simply non all, business expenses | Counted with deductions for nearly expenses, depreciation, and concern losses |
| Bacon deferrals (flexible spending, cafeteria, and 401(k) plans) | Counted | Not counted |
| Child support received | Counted | Non counted |
| Pension paid | Not deducted from income | Deducted from income (subject to new rules in 2019) |
| Veterans' benefits | Counted | Not counted |
| Workers' bounty | Counted | Not counted |
| Gifts and inheritances | Counted as lump sum income in calendar month received | Non counted |
| TANF & SSI | Counted | Non counted |
View all key facts
Source: http://www.healthreformbeyondthebasics.org/key-facts-income-definitions-for-marketplace-and-medicaid-coverage/
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