1. MODIFIED ADJUSTED GROSS INCOME (MAGI) 12-10-2014 Basic Benefit Training: Health Access Vicky Pulos vpulos@mlri.orgvpulos@mlri.org 617-357-0700 Ext. 318 1

2. Understanding MAGI How do you identify the members of a MAGI household? What income is counted & deducted to calculate MAGI household income? How do MassHealth & premium tax credit-Connector MAGI rules differ? 2

3. Why understand MAGI To complete applications more accurately To flag incorrect results & refer patients/clients for help To help fix incorrect results informally or through an appeal To inform applicants how tax related decisions may affect their health benefits 3

4. MAGI A new way to figure out family size & income that will be used to determine eligibility For all MassHealth applicants except those- Applying based on age 65 or older, Applying for long term care or alternatives to LTC, Applying only for a Medicare Buy-In, or Eligible based on receipt of another benefit like SSI (including “deemed” SSI), TANF, or EAEDC & some other groups For all applicants for premium tax credits & other subsidies in the Connector 4

5. MAGI is based on tax rules MAGI uses tax rules about tax filers & tax dependents to identify a household MAGI uses tax rules about what is included in income & what isn’t Tax rules on what counts as income are “modified” for purposes of Connector & MassHealth, 5

6. Why the change to MAGI? Required by Affordable Care Act Help paying for insurance in Connector is through premium tax credits Medicaid aligns with premium tax credits to make coordination easier between the two programs 6

7. When will MAGI apply? MAGI rules effective Jan. 1, 2014 As a practical matter, MAGI was implemented with new computer system that went live Nov. 15, 2014 For people enrolled in regular MassHealth prior to Nov. 15, 2014 (1.2 million) MAGI will apply -- At annual renewal in 2015 When mid-year changes are reported & processed 7

8. 3-step process Who is in MAGI household? What is included in MAGI-based income? What is MAGI household income? 8

9. 1 st step: Who is in the household? MAGI rules based on tax household No exceptions to tax-filing household in Connector MassHealth MAGI household Exceptions to tax-filing household for some people Non-tax household rules for non-tax filers MassHealth Disabled Adult household rules 9

10. Unique features of MAGI In MassHealth & Connector, people who don’t live together may be in same benefit household based on tax filing In MassHealth, households must be “built” for each applicant Sometimes, A is in B’s household, but B is not in A’s household 10

11. Why household size and composition matter Household size affects conversion of income to a federal poverty level percentage Who is in household determines whose income counts Household size 100% FPL133% FPL200% FPL 1$972.50$1293.43$1945.00 2$1310.83$1743.41$2621.67 3$1649.17$2193.39$3298.33 4$1987.50$2643.38$3975.00 5$2325.83$3093.36$4651.67 11

12. Households for Premium Tax Credits (Connector) Household = individuals for whom a taxpayer claims a deduction for a personal exemption Taxpayer can claim personal exemption for: – Self and spouse (filing jointly) – Dependents Children and other relatives who meet certain requirements Person may be a dependent even if he files a tax return (as long as he does not claim his own exemption ) 12

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14. Premium Tax Credit MAGI Household Household = Tax Unit FilerSpouse Qualifying Child(ren) Qualifying Relative(s) 14

15. Who qualifies as a dependent US citizen/ noncitizen “substantially present” in US, Live with you for more than half the year,* Under 19, or 24 if full- time student or any age if disabled, and doesn’t provide more than half of own support. *Different rule if custodial parent releases exemption in favor of noncustodial parent 15

16. Who qualifies as a dependent US citizens or noncitizens “substantially present” in US, You provide more than 50% of dependent’s support, Related to your OR lives in your home all year, and Dependent makes less than $3,950 (2014), and Can’t be claimed as a Qualifying Child. 16

17. Center on Budget and Policy Priorities Example: Married Couple with Children (Reyes family)  The Reyes are a family of four.  Mom and dad are married. They have two children.  They file taxes as married filing jointly & claim both children as dependents. How many tax filing households are there? How many people are in the tax filing household? –

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20. cbpp.org Households for Premium Tax Credits  Household is based on expected tax filing status for tax year in which advance premium tax credit is being claimed – Household is not based on previous tax return – Life changes will affect household (and credit amount)

21. Married Couples & Premium Tax Credits General rule: Married couples must file jointly to qualify for a premium tax credit. Couples are not considered “married” under tax rules if legally separated or eligible to file taxes as Head of Household Exception if married & unable to file jointly due to domestic violence or abandonment Afternoon troubleshooting session will talk more about this 21

22. Non-tax filers in the Connector Application asks: Do you expect to file taxes? If NO, you will not be eligible for a premium tax credit or ConnectorCare. Your application will be processed to see if you may qualify for MassHealth or other benefits. 22

23. MassHealth MAGI Household MassHealth MAGI household differs from MAGI used for PTC in Connector in a few ways MassHealth has rules for people who don’t expect to file taxes or be claimed as dependents MassHealth has some exceptions to basing household of a dependent on tax household MassHealth counts the household size of a pregnant woman as including the babies she’s expecting MassHealth includes married couples who live together in the same household regardless of how they file MassHealth has special rule for Disabled Adults 23

24. MassHealth & Disabled Adults Under ACA, MAGI does not apply to disabled adults Under 1115, MassHealth will use MAGI income counting rules but modify tax filing household rules for disabled adults MassHealth will apply non-filer household rules to disabled adults who are claimed as tax dependents Afternoon troubleshooting session will talk more about this 24

25. MASSHEALTH MAGI Household (HH) If anyone in HH is pregnant include the number of babies expected in HH size * Do you expect to file a tax return & claim an exemption for 2015? Yes Your HH is you, a spouse, if living with you or filing jointly, & your tax dependents* No Do you expect anyone to claim you as a tax dependent for 2015? Yes You have the same HH as the person claiming you as a dependent plus a spouse living with you,* unless an Exception applies... Exception 1: Are you claimed by someone other than your parent/spouse? Exception 2: Are you a child under 19 living with two parents who will not file jointly? Exception 3: Are you a child under 19 claimed by a noncustodial parent? No: Non-tax filer rules apply Your HH is you &, if living with you: your spouse, your children under 19 & if you are a child, your parents & siblings under 19* Yes: Non-tax filer rules apply

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27. cbpp.org Center on Budget and Policy Priorities cbpp.org MassHealth Rule for Tax Filers Household = tax filer and all persons whom taxpayer expects to claim as a tax dependent For married couples filing jointly, each spouse is considered a tax filer Married couples living together always in same household regardless of filing status Anyone pregnant includes fetus(es) in family size

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29. cbpp.org MassHealth Rule for Non-filers Not Claimed as Dependents Household = individual plus, if living with individual, spouse and children under 19, and  For children under 19 Household also includes, siblings under 19 and parents (including step-parents) living with child  Similar to 2013 MassHealth gross income rule but not identical

30. Center on Budget and Policy Priorities cbpp.org Example: Child Claimed by Non-Custodial Parent Lisa lives with her son and files taxes as a single individual Non-custodial dad claims son as his only dependent Counted in HH Lisa Son Dad Lisa Son Dad HH Size for Medicaid ? ?

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32. cbpp.org Drew Mary ? ? Example: Non-Married Parents  Dan and Jen live together with their 2 children, Drew and Mary  Dan and Jen both have income  For taxes, Dan claims the children, Jen files on her own Jen ? Dan Counted in HH DrewMary HH Size for Medicaid ?Dan Jen Center on Budget and Policy Priorities

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34. Comparing household rules Connector -Premium Tax Credits-Tax Filing Household Household equals tax filing unit Members of tax filing unit have same household size MassHealth Household does not always equal tax filing unit Individual determination of household – may vary across family members 34

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37. 2nd step: determining MAGI-based income MAGI rules on what is counted in income & what is not What counts in Gross (or Total) income Line 7-21 (Total on Line 22) on Form 1040 Deductions from Total Income to get to Adjusted Gross Income (AGI) Lines 23-36 (AGI on Line 37) on Form 1040 Modification of AGI for both MassHealth & Connector, 26 CFR 1.36B Added modification in MassHealth only, 42 CFR 435.630 37

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40. What is MAGI? Need to Calculate Adjusted Gross Income: Add up total income (lines 7-22 on IRS Form 1040) Subtract deductions (line 23-36 on Form 1040) Adjusted gross income (line 37 on Form 1040) Modification of AGI: Add in the following nontaxable income: Tax exempt interest (line 8b on Form 1040) Non-taxable social security (line 20a less 20b on Form 1040) Tax exempt foreign income (line 45 & 51 IRS Form 2555)

41. Center on Budget and Policy Priorities cbpp.org What Counts in Determining Total (Gross) Income?  Income in the form of money, goods, property, and services  Income is counted unless it is exempted under tax rules  Calculated on IRS Form 1040 on lines 7 to 22

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43. Pre-tax wage deductions 43

44. Center on Budget and Policy Priorities  Line 37 on form 1040  Total Income minus adjustments = AGI (Adjustments also known as “above the line” deductions) cbpp.org How Is Adjusted Gross Income Calculated?

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46. Center on Budget and Policy Priorities *Note that many adjustments are capped or may be limited based on a taxpayer’s income **May be more tax savings by claiming “below the line” education tax credits instead cbpp.org What Adjustments are Made to Total Income to Determine Adjusted Gross Income?* Examples:  Job-related moving expenses  Student loan interest  Tuition and fees **  IRA contributions  Alimony paid

47. Differences in Income Sources: MAGI and 2013 MassHealth Gross Income Rules Income Source 2013 MassHealth Rules MAGI Rules Self-employment income Counted with deductions for business expenses but losses not counted Counted with deductions for business expenses, & losses reduce AGI Salary deferrals (flexible spending, cafeteria and 401(k) plans Counted Not counted in Job Income Child support received Counted Not counted Alimony paid Not deducted from income Deducted from income VA benefits Counted Not counted Workers’ compensation Counted Not counted Gifts & inheritances Counted as lump sum income in month received Not counted Social Security Counted

48. IRS.GOV 48

49. MassHealth vs. Connector Differences in household rules affect household income 5% FPL deduction in MassHealth only Some income counted in Connector does not count in MassHealth Lump sum payments only counted in mo. of receipt Certain taxable education expenses e.g. work study IF used for education not living expenses Certain taxable distributions to American Indians MassHealth looks at current monthly income; Connector looks at expected annual income for the year in which you are receiving benefits 49

50. 5% MassHealth income disregard New disregard of 5% of federal poverty level Effectively increases MassHealth income ceiling e.g. from 133% to 138% FPL 5% disregard does not apply to Premium Tax Credits calculation 50

51. 5% of FPL Deduction only varies by family size not by family income 51

52. Example of 5% deduction Married couple file jointly & claim one child as dependent; Their MAGI is $2,250 per mo. Income ceiling for MassHealth Standard for a family of 3 (133% FPL) is $2193.39 5% of 100% FPL for family of 3 is $83 per mo Countable family income is $2250 -$83 = $2167 MassHealth MAGI is UNDER 133% FPL, family is eligible for Standard 52

53. 3rd step: determining household income All members of household counted in determining family size & applicable FPL Not all members of household will have their income counted in household income 53

54. Center on Budget and Policy Priorities cbpp.org Whose Income Counts for Premium Tax Credits and MassHealth? Household income = Sum of MAGI of all individuals in the household who are required to file a tax return Income of children and tax dependents not counted unless expected to be required to file a tax return For children in 2014  earned income more than $6200 or  taxable unearned income more than $1000 or  Gross taxable income more than greater of $1000 or $5850 earned plus $350  child support and nontaxable social security do NOT count toward threshhold -- Don’t count income if return filed (e.g. to get refund of withheld taxes) but not required to file –

55. Example: Married Couple with Children (Reyes family)  Mom and dad file a joint return and claim both children as dependents  Family’s financial situation: – $10,000 – Mom’s income from own business – $25,000 – Dad’s gross salary(including $4,000 pretax retirement contribution) – $5,000 – Son’s income from weekend and summer jobs Who is in tax filing household? What is MAGI income in Connector? Who is in MassHealth MAGI household for each individual? What is MassHealth MAGI income for each individual in household?

56. Center on Budget and Policy Priorities Example: Married Couple with Children (Reyes family)  Mom and dad file a joint return and claim both children as dependents  Family’s financial situation: – $10,000 – Mom’s income from own business (counted) – $21,000 – Dad’s salary (counted) less $4000 pretax contribution – $5,000 – Son’s income from weekend and summer jobs (not counted) $31,000 –Household income for tax filing household – Household income for MassHealth and PTC : MassHealthPremium Tax Credits cbpp.org HHIncomeFPLHHIncomeFPL Mom 4$31,000125%4$31,000130% Dad 4$31,000125%4$31,000130% Son 4$31,000125%4$31,000130% Daughter 4$31,000125%4$31,000130%

57. 3 1 3 1 ? ? ? Dan Jen ? ? ? ? 4 4 3 3 ? ? Drew Mary ? ? ? ? Example: Non-Married Parents  Dan and Jen are not married, but live together with their 2 children, Drew and Mary  Dan claims the children. Jen files on her own  Family’s financial situation: – $26,000 – Dan’s income – $22,000 – Jen’s income HH FPL(- 5%) Income HHFPL Income Premium Tax Credits MassHealth

58. 3 1 3 1 126% 184% 131% 189% Dan Jen $26,000 $22,000 $26,000 $22,000 4 4 3 3 196% 131% Drew Mary $48,000 $26,000 Example: Non-Married Parents  Dan and Jen are not married, but live together with their 2 children, Drew and Mary  Dan claims the children. Jen files on her own  Family’s financial situation: – $26,000 – Dan’s income – $22,000 – Jen’s income HH FPL(- 5%) Income HH FPL Income Premium Tax Credits MassHealth

59. Center on Budget and Policy Priorities cbpp.org Income and Household Changes Can Affect Eligibility and/or Amount of Assistance  Increase or decrease in income  Household changes: – Birth or adoption of child – Marriage, divorce or legal separation – Death of family member – Family member no longer eligible to be claimed as tax dependent

60. Center on Budget and Policy Priorities cbpp.org Report Changes in Households and Income to the MassHealth or Connector  MassHealth – Change taken into account prospectively – Eligibility re-determined based on monthly income  Premium tax credits APTC will be adjusted prospectively based on recalculated annual income The final credit amount will depend on household at the end of the tax year

61. More on MAGI Federal Regulations 42 CFR 435.603 (Medicaid) and 26 CFR §1.36B-1 (Tax credits) State regulations 130 CMR 506 on mass.gov/masshealth 1115 Demonstration posted on mass.gov/masshealth 61

62. Healthreformbeyondthebasics.org 62

63. Other secondary sources National Health Law Program (NHeLP), The Advocate’s Guide to MAGI, posted on http://healthlaw.org/images/stories/2013_10_18_AGMAGI.pdf http://healthlaw.org/images/stories/2013_10_18_AGMAGI.pdf MLRI “Understanding the Affordable Care Act: How MassHealth will count income in 2014” posted at masslegalservices.org 63