Calculating MAGI
December 11, 2013
Refreshers
2
Individuals are eligible for an APTC if they:
1. Enroll in a QHP from the Marketplace
2. Have projected annual income between 100% and 400% FPL (with
exception for legal immigrants)
3. Lack access to other coverage that meets some basic standards
(“minimal essential coverage”)
4. Meet various tax-based requirements:
• Plan to file a federal tax return
• If married, plan to file a joint tax return
• Not eligible to be claimed as a dependent on someone else’s tax
return
3
APTC is Calculated By:
•
Determining the amount the family is expected to spend on
premiums (expected contribution) given its income.
•
Identify the cost of the applicable Silver plan (benchmark plan)
for the family.
•
Fill the gap- after identifying a family’s expected contribution,
determine how much more it needs to purchase the benchmark
plan. The APTCs are set at this dollar amount to “fill the gap.”
4
MAGI
•
For APTC:
AGI
Foreign Income ,
Tax Exempt
Interest and
Non-taxable
Social Security
Benefits
Received
MAGI
• For Medicaid, MAGI with additional modifications:
•
•
•
Exclude certain scholarship and fellowship income
Exclude certain Native American and Alaska Native income
Count lump sum income only in the month received
5
Calculating Income
(MAGI)
6
Why Do We Use MAGI?
•
•
•
Eligibility for insurance affordability programs (IAPs) falls along
a continuum based on income, age, and other eligibility factors.
On this continuum, income is measured as percent of the
federal poverty level, or FPL
FPL is determined by taking household size and household
income
7
Whose Income is Counted?
8
General Filer Rules:
Tax Filer vs. Tax Dependent
“Tax Filer”
Individual plans to file a federal income tax
return and does not expect to be claimed
as a tax dependent on someone else’s
federal income tax return for the year
coverage is sought.
“Tax Dependent”
Individual expects to be claimed as a “tax
dependent” for the year coverage is
sought.
Example: a father, who plans to claim his child as a tax dependent, is called the “tax filer.” The child,
claimed by his father, is a “tax dependent.”
9
9
Tax Filer Rules
Construct a tax filer’s household:
 A tax filer’s household must include:
The taxpayer; AND
His/her spouse if they live together, regardless of whether or not
they intend to file a federal income tax return jointly; AND
Individuals the taxpayer expects to claim as a tax dependent on
his/her federal income tax return.
10
10
Whose Income Is Counted?
 Generally, MAGI income of all
individuals in a household must be
counted toward household income.
Whose income
is counted?
 Let’s review an example
11
11
Whose Income Is Counted?: Example
Sam Scenario: Sam and Susan are married, plan to file taxes jointly, and plan to claim their
daughter, Sarah, age 6, as a tax dependent. Sam’s monthly income is $1,000, Susan’s monthly
income is $500, and Sarah has no income.
Married
$1,500
Sam earns
$1,000
income/mo.
Susan earns
$500
income/mo.
Sam and Susan
plan to file
jointly and
claim Sarah as a
tax dependent.
Sam’s Total Monthly
Household Income for a
Family Size of 3
Sam’s $1,000
Sarah, 6 y/o
Susan’s $500
12
12
Whose Income Is Counted?:
Exceptions
Usually MAGI income of all individuals in an individual’s household
must be counted toward household income, but there are two
exceptions:
1
Income of most children not expected to be required to file a
federal income tax return; and
2
Income of most tax dependents not expected to be required to file a
federal income tax return.
Note: These rules are based on whether or not an individual is “expected” to be required to file
taxes for the year coverage is received; it does not matter whether the individual eventually
does or does not file taxes.
Details to follow . . .
13
13
Exceptions to Whose Income Is
Counted: Children
Exception for the income of children:
 Child’s income does not count toward household income if child is
included in the household of his or her parent, unless the child is
required to file taxes.
 Child’s income does not count for evaluating:
─
Child’s eligibility; OR
─
Eligibility of other household members.
 Applies to adult children who are tax dependents of their parent.


If a child does not live with his or her parent and is not claimed as a tax dependent by his or
her parent, then the child’s household will not include the parent.
In this case, the child’s income will count for his or her own eligibility and the eligibility of
the child’s other household members, such as siblings, regardless of whether the child’s
income is high enough to require a tax return to be filed.
14
14
Child Income Exception Scenarios 1
Kelly Scenario: Kelly, age 16, lives with her mother and babysits on Saturday nights
for her neighbor’s child two times/month and earns $50 each night. Kelly is not
expected to be required to file taxes.
Kelly earns $100 each
month
$
Kelly, 16 y/o,
babysits her
neighbor’s child
Kelly is not
expected to be
required to file
taxes.
$
Kelly’s income is not
counted in the
household income of
herself nor the
household income of
her mother.
15
15
Child Income Exception Scenarios 2
Marty Scenario: Marty claims his adult son, Mark, as a tax dependent. Marty makes $2,500 a
month. Mark is a 22-year old college student and makes $400 a month working as a waiter
and is not expected to be required to file a tax return.
Marty
earns
$2,500/mo
.
Marty plans to
claim Mark as a
tax dependent.
$2,500
Marty’s Total Monthly
Household Income for a
Family Size of 2
Marty’s $2,500
Mark, 22 y/o, earns
$400/mo.
Mark does not
plan to file
taxes.
Mark’s $400
16
16
Child Income Exception Scenarios 3
Sadie Scenario: Sadie, age 55, plans to claim her daughter, Stephanie, age 17, and her
granddaughter, Sarah, age 2, as tax dependents. Sadie earns $3,000 a month in wages. Stephanie
earns $500 a month in wages. Sadie and Stephanie both plan to file taxes, but Stephanie does not
make enough money to be expected to be required to file taxes.
Sadie, 55 y/o, earns
$3,000/mo.
$3,000
Stephanie, 17 y/o,
earns $500/mo.
Sarah, 2 y/o
Sadie plans to
file taxes and
claim
Stephanie and
Sarah as tax
dependents.
Sadie’s Total Monthly
Household Income for a
Family Size of 3
Sadie’s $3,000
Stephanie’s
$500
Sadie
Sarah
Stephanie
17
17
Child Income Exception Scenarios 4
Stephanie Scenario: Sadie, age 55, plans to claim her daughter, Stephanie, age 17, and her
granddaughter, Sarah, age 2, as tax dependents. Sadie earns $3,000 a month in wages. Stephanie
earns $500 a month in wages. Sadie and Stephanie both plan to file taxes, but Stephanie does not
make enough money to be expected to be required to file taxes.
Sadie, 55 y/o, earns
$3,000/mo.
$3,000
Stephanie, 17 y/o, earns
$500/mo.
Does not meet any
dependent care exceptions
Sarah, 2 y/o
Stephanie does
not plan to file
taxes.
Stephanie’s Total
Monthly Household
Income for a Family Size
of 3
Sadie’s $3,000
Stephanie’s
$500
Sadie
Sarah
Stephanie
18
18
Exception for the Income of Most
Other Tax Dependents
Exception for the income of other tax dependents:
 Scenarios 1-3: Include income of a tax dependent in household income of
person who is claiming them, only if the tax dependent is expected to be
required to file a tax return.
 Scenario 4: Income of a tax dependent is included in household income of any
household where both that tax dependent and his/her claiming tax filer are
present, only if the tax dependent is expected to be required to file a tax
return.
19
19
Household Income
(A) Household income
The term ‘‘household income’’ means, with
respect to any taxpayer, an amount equal to
the sum of—
(i) the modified adjusted gross income of
the taxpayer, plus
(ii) the aggregate modified adjusted
gross incomes of all other individuals
who—
(I) were taken into account in determining
the taxpayer’s family size under
paragraph (1), and
(II) were required to file a return of tax
imposed by section 1 for the taxable
year.
Definition from tax code
20
Step 2: What Income Counts?
Step
2
What counts as
household
income?
 Use IRS measure of MAGI, which defines what counts
as income after accounting for selected tax
adjustments.
 MAGI consists of four types of income that are
counted in determining eligibility:
1) Taxable income (described later)
2) Social Security benefits not included in taxable income
3) Tax-exempt interest
4) Foreign earned income
Note: Most individuals eligible for Medicaid/CHIP will only have taxable income and
some will have Social Security benefits. Almost none of these individuals will have
tax-exempt interest or foreign earned income.
21
21
Countable Income
Taxable wages/salary (before taxes are taken out)
Self-employment (profit once business expenses are paid)
Social Security benefits
Unemployment benefits
Alimony received
Most retirement benefits
Note: Pre-tax contributions
to dependent care
accounts, health insurance
premiums, flexible
spending accounts,
retirement accounts and
commuter expenses are
NOT included as income
Interest (including tax-exempt interest)
Net capital gains (profit after subtracting capital losses)
Most investment income, such as interest and dividends
Rental or royalty income (profit after subtracting costs)
Other taxable income, such as canceled debts, court awards, jury duty pay not given to an
employer, cash support, and gambling, prizes, or awards
Foreign earned income
22
Non-Countable Income
Temporary Assistance to Needy Families
(TANF) and other government cash assistance
Supplemental Security Income (SSI)
Child support received
Veterans benefits
Worker’s compensation payments
Proceeds from life insurance, accident
insurance, or health insurance
Federal tax credits and Federal income tax
refunds
Gifts and Loans
Inheritances
23
Calculating MAGI
•
There are two methods for helping customers identify their
MAGI income:
1.
2.
Construct MAGI income
Use previous tax return
24
CONSTRUCTING MAGI
25
“Construct” MAGI
 Help the individual construct MAGI using IRS definitions and rules.
 This requires gathering detailed information on an individual’s
household income from various sources and adjustments.
 Use the application questions on income in the paper to construct
MAGI, or use the MAGI worksheet
Step 1
• Determine taxable
income.
Step 2
• Subtract
adjustments from
taxable income.
26
26
Income Questions
•
•
The online application asks for projected annual income.
The paper application walks individuals through the various
types of income.
27
Income Questions
28
Income Questions
29
MAGI Worksheet
Enter your Taxable wages/salary/tips (before taxes are taken out)
Note: that pre-tax contributions to dependent care accounts, health insurance premiums, flexible
spending accounts, retirement accounts and commuter expenses are NOT included as income
1
2
3
4
5
6
7
8
9
10
11
12
13
Enter your Self-employment (profit once business expenses are paid)
Enter your Social Security benefits (taxable and non-taxable)
SSDI is included here. SSI income is not included here. If you are receiving SSI, you are
automatically eligible for Medicaid in the state of Colorado. You also do not need to include any
veterans disability benefits you may receive.
Enter your Unemployment benefits
Enter your Alimony received
Enter your Retirement benefits (taxable IRA distributions, pensions, and annuities)
Enter your Interest (including tax-exempt interest)
Examples of interest are interest on bank accounts, bonds, money market accounts, certificates
of deposit, deposited insurance dividends, and seller financed mortgage . Examples of nontaxable interest are
Enter your Net capital gains (profit after subtracting capital losses)
Enter your Dividends
Enter your Rental or royalty income (profit after subtracting costs)
Enter Other taxable income, such as canceled debts, court awards, jury duty pay not given to an
employer, cash support, and gambling, prizes, or awards or farm income. Also include taxable
refunds, credits or offsets of local or state income taxes.
Enter your Foreign earned income
Add lines 1-12
1
2
$
$
3
4
5
6
$
$
$
$
7
8
9
10
$
$
$
$
11 $
12 $
13
0.00
30
Adjustments to taxable income
 Tax adjustments must be subtracted from an individual’s taxable income. A list of
these adjustments can be found on lines 23-35 of the IRS 1040 Form.
 Some of the tax adjustments include:
Certain self-employment business
expenses
Penalties on the early withdrawal of savings
Alimony paid
Certain educator expenses
Portion of interest on student loans
Certain moving expenses related to a job
change
Most contributions to individual
retirement arrangements (IRAs)
Certain business expenses of performing
artists, reservists, and fee-basis government
officials
Certain tuition and fees
Health savings account contributions
 Most common adjustments among individuals likely include
certain self-employment expenses, most contributions to
IRAs, alimony paid, tuition and student fees, and student
loan interest.
31
Common adjustments
 Most adjustments for self-employed business expenses are included in net
income (profit once business expenses are paid).
See IRS
 Additional adjustments can be made for:
Publication
─
─
─
Deductible part of self-employment tax
Self-employed SEP, SIMPLE, and qualified plans
Self-employed health insurance adjustments
334, Tax Guide
for Small
Business, for
more details
 Payment to spouse or former spouse under divorce or separation
agreement.
 Households may be able to deduct most interest they expect to pay on
qualified student loans up to $2,500 per year.
 Form 1098-E, Box 1, shows interest paid for prior year. This may help
project student loan interest that will be paid during the year.
32
Adjustments/Deductions
•
The paper application asks for deductions as follows.
33
MAGI Worksheet
Enter your Self-employment business expenses
14*
Most deductions for self-employed business expenses are included in net income (the profit once business
expenses are paid) but additional deductions can be taken for the deductible part of self-employment tax,
self-employed SEP, SIMPLE, and qualified plans, and self-employed health insurance deductions. For
additional information see IRS Publication 334, Tax Guide for Small Business.
Enter your Portion of interest on student loans
13 $
Households may be able to deduct a portion of the interest they expect to pay on a qualified student loan.
Box 1 of the 1098-E Form shows the interest paid for the prior year, which may be helpful in projecting
student loan interest that will be paid during the year
15
14 $
Enter your Alimony paid
16
17
18
19
20
21
Enter your IRA deduction
Enter your Tuition and fees
Enter your Health savings account contributions
Enter your Educator expenses
Enter your Penalties on the early withdrawal of savings
22
Enter your Certain business expenses of performing artists, reservists, and fee-basis government officials
23
Enter your Moving expenses related to a job change
24
Enter your Domestic Production Activities deduction
25
Add lines 14-24
Subtract line 25 from line 13 ( i.e. Line 13 - Line 25 = MAGI) . This is your Modified Adjusted Gross Income
15
16
17
18
19
20
$
$
$
$
$
$
21 $
22 $
$
24
0.00
$0.00
34
USING PRIOR YEARS
TAX RETURN
35
Using prior years tax return

A federal tax return may only be used to determine MAGI if the individual’s
tax return is available and they want to use it to determine MAGI.

Individuals are NOT required to use a prior year’s tax return. In addition,
many individuals eligible for Medicaid/CHIP are not required to file federal
income taxes because their income does not meet the tax filing threshold.

A federal tax return is helpful if the individual filed federal taxes last year
and his circumstances have not changed notably since last year’s tax filing
and income is steady month-to-month.

Allows Medicaid/CHIP agency to use the income and adjustments the
individual reported in accordance with IRS rules on last year’s federal
income tax return.
36
Determine MAGI Using a Prior
Year’s Federal Tax Return (cont’d)
 Pull “adjusted gross income” from appropriate line of federal income
tax form:
Line 4 on Form 1040EZ
Line 21 on Form 1040A
Line 37 on Form 1040
37
37
Determine MAGI Using a Prior
Year’s Federal Tax Return (cont’d)
 If applicable, add following sources of income from last year’s tax form:
 Any social security benefits not
already included in taxable
income
 Tax-exempt interest taxpayer
expects to receive or accrue
during year
Line 20a on Form 1040
Line 8b on Form 1040

Foreign earned income excluded
from taxable income (based on
Form 2555, line 26 or Form 2555EZ, line 17)
Line 7 on Form 1040
38
38