412-3 Whose Income Counts for MAGI Household?

Effective Date:  January 1, 2018

Previous Policy

 

To determine countable MAGI-based income for each individual, decide who is included in the individual's household. Then decide whose income must count for that individual's eligibility.

A.      Whose Income to Count

1.    Count the MAGI-based income of every individual included in the household with the following exception.

2.    Do not count income of a qualifying child or a qualifying relative who does not expect to be required to file a tax return.

3.    Accept the client's statement about whether a dependent expects to be required to file a tax return unless the eligibility agency has information that contradicts the client’s statement. Only request additional verification when it appears the dependent will have enough income to be required to file a tax return.

B.       Income of a Tax Dependent

There are two different classes of dependents: Qualifying Child and Qualifying Relatives (which includes certain unrelated persons.) See section 230-2 for the definition of a qualifying tax dependent. Instructions for completing a 1040 tax return explain who meets the criteria for the two classes of dependents. (See IRS website)

Most of the time, the tax filer's dependent will not have a filing requirement. They will not usually "expect to be required" to file a tax returnIn that case, the income of the dependent does not count.

In some cases, a tax dependent who is required to file a tax return may still meet the tax dependent criteria.  (See IRS publication 1040 Instructions for the income limits for a dependent to be required to file a tax return.)  IRS Filing requirements for dependents

The tax filing income threshold for a dependent is different if the income is unearned (like interest income) or earned. The threshold is less if the only income is unearned. Refer to C. for tax dependents' filing limits.

1.    Qualifying Child

Even if a qualifying child expects to be required to file a tax return, the child counts in the MAGI household of the tax filer.  Count the MAGI-based income of a qualifying child for the MAGI household in which that child is included only if the child is expected to be required to file a tax return.

2.    Qualifying Relative

If a qualifying relative is required to file a tax return, he may not qualify as a tax dependent. The income threshold to meet the criteria of being a qualifying relative is less than the earned income filing requirement threshold.

Include the qualifying relative's income in the tax filer's household income if the individual still meets the qualifying relative criteria, but expects to be required to file.

a.    If the agency has information that suggests the tax filer cannot claim an individual as a qualifying relative, do not count that individual in the MAGI household and do not count his income. 

b.    If the agency questions whether an individual can be claimed as a qualifying relative, the tax filer may provide evidence to establish their claim.  If the tax filer can establish a basis for claiming the person as a dependent, include the dependent in the MAGI household. Then decide if the dependent's income must be counted.

c.     The income threshold to claim someone as a qualifying relative changes each year. Do not count the dependent's Social Security income to decide if the individual meets the threshold. (See Table VII in the Medicaid Manual)

C.       When a Dependent Must File a Tax Return

IRS rules set an income threshold for when a tax dependent must file a tax return. Some other rules may apply, too. In general, a person claimed by another tax filer must file a tax return if he has taxable income in excess of the IRS threshold.  (See Table VII in the Medicaid Manual)

o    Social Security Benefits. If a tax dependent's only source of income is Social Security benefits, the individual is not required to file a tax return. This is true even if the person receives more than the unearned income threshold. The individual would need to have other taxable unearned income or earned income in excess of the threshold to be required to file.

o    For CHIP, the Social Security income of a dependent is counted only when the dependent is expected to be required to file a tax return.