The New World of MAGI Income Tricia Brooks Arizona Assister Training September 2014

Warning! o This training gets into the policy weeds of how household and income are counted under MAGI! 2

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,

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 4

Which groups are subject to MAGI? 5 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 6 Income Limit Children < 1 year152% FPL Children 1 – 5146% FPL Children % FPL Pregnant Women161% FPL Adults138% FPL States were required to convert old standards to new MAGI rules. MAGI moves toward electronic, real-time eligibility determination. Eligibility CriteriaVerification Citizenship/Immigr ation Status Electronic * Income Electronic * Age/DOBSelf-Attestation ** HouseholdSelf-Attestation ** SSNElectronic * PregnancySelf Attestation ** State ResidencyElectronic * * If cannot be verified electronically, paper documentation required. ** If discrepancy between electronic sources, paper documentation required.

Three Steps for Assessing Eligibility Step 1 Determine if non-filer, tax-filer, tax- dependent, or exception for Medicaid Step 2 Determine household size based on applicable tax-filer, non-filer or exception rules Step 3 Add the MAGI income of all the relevant members of the individual’s household. 7

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. 8 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 9

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. 10 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 11

①Child (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. 12

Example Exception 1 – Alan, Judith and Jake 13 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 HouseholdMedicaid Household AlanHousehold of 1, AlanHousehold 1, Alan JakeHousehold of 2, Judith and JakeHousehold of 2, Alan and Jake JudithHousehold of 2, Judith and Jake

②Child 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 14 If married filing separately, the family is not eligible for PTC

Example Exception 2– Ross and Rachel 15 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 HouseholdMedicaid Household RossHousehold of 2, Ross and Emma EmmaHousehold of 2, Ross and EmmaHousehold of 3, Ross, Rachel and Emma RachelHousehold of 1, Rachel

③Individual 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 16

Example Tax Dependent – Will Smith/Banks 17 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 HouseholdMedicaid Household WillHousehold of 6, Will and all 5 BanksHousehold of 1, Will Banks Family Members Household of 6, Will and all 5 Banks

④Married 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 18 Marketplace HouseholdMedicaid Household LucyNot eligible, not filing jointlyHousehold of 2 RickyNot eligible, not filing jointlyHousehold of 2

⑤Pregnant 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 19

Ross and Rachel are having another baby Ross 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. 20 Marketplace HouseholdMedicaid Household RossHousehold of 2, Ross and Emma EmmaHousehold of 2, Ross and EmmaHousehold of 3, Ross, Rachel and Emma RachelHousehold of 1, RachelHousehold of 2, Rachel plus baby

21 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

22 Step 2B What income counts? Adjusted Gross Income from line 31 on Excluded foreign income +Tax exempt interest +Non-taxable Social Security benefits = MAGI Adjusted 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) 23

What deductions/adjustments count? Most common: Alimony paid Student interest IRA contribution Moving expenses Other deductions are listed (lines on 1040) 24

Changes to How Income is Counted in Medicaid INCOME SOURCEPRE-MAGI MEDICAIDMAGI MEDICAID Self-employmentNot all business expenses (i.e. depreciation) were deductible NET INCOME/PROFIT Counted 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 incomeNot included in gross income Child support receivedCounted as incomeNot counted as income Alimony paidNot deducted from incomeDeducted from income Veterans’ benefitsCounted as incomeNot counted as income Workers’ compensationCounted as incomeNot counted as income Step-parent incomeState option but not always counted toward child’s eligibility Counted as household income TANF and SSICounted as incomeNot counted as income 25

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 26

Deduct pre-tax contributions/salary deferrals when reporting income 27 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? 28 On Pay Stubs: Difference between gross wages and gross “taxable” wages. Or list of deductions taken.

Examples – Pre-tax Deductions 29 Example 1 Mary 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 2 John 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 3 John 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 30

Social Security Income Examples 31 Example 1 Mary 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 2 Same 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 3 Same 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 Policy Health Policy Institute Center for Children and Families Center on Health Insurance Reforms Tricia Brooks Website: Say Ahhh! a child health policy blog: og/ og/ 32 JoAnn Volk Website: CHIR Blog: