In this Beyond the Basics webinar presented on September 14, 2021, Tara Straw, Director of Health Insurance and Marketplace Policy, and Jen Wagner, Director of Medicaid Eligibility and Enrollment, detail the rules used to determine household size and explain what counts as income when determining eligibility for premium tax credits and Medicaid.

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Why Household Size & Income Matter

• ACA Eligibility Overview
• How the federal poverty line (FPL) effects expected premium contribution

Why Tax Filing Status Matters

• Overview of tax filing statuses
• Marital status and premium tax credits (PTC)
• Head of household questions
• Exceptions to the joint filing requirement for PTC

Determining Households for Premium Tax Credits

• Types of tax dependents

Determining Households for MAGI Medicaid

• Medicaid household rules

What Counts as Income for PTC and Medicaid

• Modified Adjusted Gross Income (MAGI)
• Rules for counting income
• Tips for counting self-employment income

Annual vs Monthly Income Counting

• Entering monthly income
• Entering annual income

Examples of Combining Household & Income Rules to Determine Eligibility

Additional Resources

Yearly Income Guidelines and Thresholds

Medicaid Household Rules

Determining Households for Medicaid and CHIP

Determining Households for PTC

Income Definitions for Marketplace and Medicaid Coverage

Self-Employment Income Estimator Tool

Health Care Assister’s Guide to Tax Rules

Updated September 2020

The health reform law changed the way Medicaid and CHIP determine eligibility for most beneficiaries to align with how eligibility for premium tax credits is determined in the Marketplaces.  All three coverage programs determine a household’s size and income using tax rules.  The Center on Budget and Policy Priorities developed The Health Care Assister’s Guide to Tax Rules to familiarize people who are helping consumers apply for Medicaid, CHIP and premium tax credits with the tax rules that are applied in determining eligibility for these programs.

The guide explains the basics of who must file taxes, different filing status options, rules for claiming tax dependents, rules for determining Medicaid and CHIP households and how these rules differ from rules for premium tax credit, as well as what sources of income are considered taxable and therefore counted in determining Medicaid and premium tax credit eligibility.  The guide is meant to give health care assisters a basic understanding of these rules to help guide discussions with applicants.

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 do marketplaces, Medicaid, and CHIP measure a person’s income?

For the premium tax credit, most categories of Medicaid eligibility, and CHIP, all marketplaces and state Medicaid and CHIP agencies determine a household’s income using MAGI. States’ previous rules for counting income continue to apply to people who qualify for Medicaid based on age or disability or because they are children in foster care.

MAGI is adjusted gross income (AGI) plus tax-exempt interest, Social Security benefits not included in gross income, and excluded foreign income. Each of these items has a specific tax definition; in most cases they can be located on an individual’s tax return (see Figure 1). (In addition, Medicaid does not count certain Native American and Alaska Native income in MAGI.)

FIGURE 1: Formula for Calculating Modified Adjusted Gross Income

What is adjusted gross income?

Adjusted gross income is the difference between an individual’s gross income (that is, income from any source that is not exempt from tax) and deductions for certain expenses. These deductions are referred to as “adjustments to income” or “above the line” deductions. Common deductions include certain contributions to an individual retirement account (IRA) or health savings account (HSA) and payment of student loan interest. 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 by 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 1 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.

Is income subtracted from workers’ paychecks as 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 by the employer. Since this income isn’t taxed, it doesn’t count towards a household’s MAGI. The wages in Box 1 of Form W-2 already exclude any pre-tax 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 affect financial eligibility for premium tax credits and Medicaid. Specifically:

• Tax-exempt interest. Interest on certain types of investments is not subject to federal income tax but is included in MAGI. These investments include many state and municipal bonds, as well 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. However, if there is other income, a portion of the benefit might be taxed. Social Security benefits are reported on Form 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.S. citizens and resident aliens living outside the U.S. can exclude some earned income for tax purposes if they meet certain residency or physical presence tests. Any foreign income excluded under this section must be added back when calculating 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 another reason but had no legal filing requirement, their income is not included.

Is a tax dependent’s income ever included in household income?

If a dependent has a tax filing requirement, his or her MAGI is included in household income. Under rules put in place by the December 2017 tax law, a dependent must file a tax return for 2020 if she received at least $12,400 in earned income; $1,100 in unearned income; or if the earned and unearned income together totals more 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 have a tax filing requirement, the dependent’s Social Security benefits will be counted toward the household’s MAGI.

If a dependent does not have a filing requirement but files anyway — for example, to get a refund of taxes withheld from their paycheck — the dependent’s income would not be included in household income.

What time frame is used to determine household income?

Financial eligibility for the premium tax credit and Medicaid is based on income for a specified “budget period.” For the premium tax credit, the budget period is the calendar year during which the advance premium tax credit is received. When determining eligibility for an advance premium tax credit, the applicant projects their household income for the entire calendar year.

Medicaid eligibility, however, is usually based on current monthly income. But for people with income that varies over the year, states must consider yearly income if the person wouldn’t be 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 but would be 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 marketplace, by considering it only in the month received.

How does MAGI differ from Medicaid’s 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 child 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 addition, states can no longer impose asset or resource limits, and various income disregards have been replaced by a standard disregard equal to 5 percent of the poverty line. There are also changes to who is included in a household and, therefore, whose income is counted.

View all key facts

Updated July 2020

We have created a tool to help you estimate the income and expenses a self-employed client needs to include on their HealthCare.gov application to project their income for the enrollment year.

This tool will give the client a ballpark estimate of their projected net self-employment income.

There’s no need to print this worksheet. You can fill the worksheet out on your computer as a PDF and email the completed worksheet to your client.

Click here for the self-employment income estimator tool

In this Health Reform: Beyond the Basics webinar presented on October 1, 2019, Tara Straw, Senior Policy Analyst, and Shelby Gonzales, Director of Immigration Policy, detail the rules used to determine household size and explain what counts as income when determining eligibility for the premium tax credit and Medicaid.

↓ View Presentation Slides (PDF)

Watch the Webinar

Additional Resources

Reference Guide: Medicaid Household Rules

Reference Guide: Yearly Guidelines and Thresholds

Guide: Health Assister’s Guide to Tax Rules

Key Facts:

• Determining Households for Medicaid and CHIP
• Determining Households for PTC
• Income Definitions for Marketplace and Medicaid Coverage

Beyond the Basics Webinar Series | View all webinars

Key Facts About Health Reform | View all key facts

Tools and Resources | View all tools and resources

Frequently Asked Questions | View FAQs

In this Health Reform: Beyond the Basics webinar presented on September 18, 2018, Tara Straw, Senior Policy Analyst, and Shelby Gonzales, Senior Policy Analyst, detail the rules used to determine household size and explain what counts as income when determining eligibility for the premium tax credit and Medicaid.

This is Part II is a four-part series on core elements of eligibility and enrollment.

Presentation Slides

↓ View presentation slides (PDF) 

Watch the Webinar

Why Household Size Matters

Jump to video section, View slides

Calculating percent of federal poverty line (FPL)

• Effect on expected premium contribution

Why Tax Filing Status Matters

Jump to video section, View slides

Overview of tax filing statuses

Marital status and the premium tax credit

• Exceptions to the joint filing rule

Determining Households for the Premium Tax Credit

Jump to video section, View slides

Households for the PTC

• Determining tax dependents (video section, slides)
• Examples: Who can be claimed as a tax dependent?

Determining Households for MAGI Medicaid

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Rules to determine households for Medicaid using MAGI rules

Examples: (video section, slides)

• Married couple with children
• Three-generation household
• Non-married parents

What Counts as Income for PTCs and Medicaid

Jump to video section, View slides

Definition of modified adjusted gross income (MAGI)

General rules about counting income

• Tips when dealing with self-employment income
• 2017 tax law changes
• When to count a dependent’s income

How Marketplaces and Medicaid Combine Household and Income Rules to Determine Eligibility

Jump to video section, View slides

Example: Three-generation household

Example: Non-married parents

Q&A

Additional Resources

Resources | View resources links

Reference Guide: Medicaid Household Rules

Reference Guide: Yearly Guidelines and Thresholds

Guide: Health Assister’s Guide to Tax Rules

Key Facts:

• Determining Households for Medicaid and CHIP
• Determining Households for PTC
• Income Definitions for Marketplace and Medicaid Coverage

Webinar OE6: Premium Tax Credits

Beyond the Basics Webinar Series | View all webinars

Key Facts About Health Reform | View all key facts

Tools and Resources | View all tools and resources

Frequently Asked Questions | View FAQs

June 11, 2018

The December 2017 tax law’s effective repeal of the requirement to have health insurance is well-known, but other less-discussed provisions of the law will have a modest impact on the calculation of modified adjusted gross income (MAGI) for Medicaid and premium tax credit eligibility. Though most changes take effect this year, they likely won’t impact tax credit reconciliation for people who projected their 2018 income under the prior-law rules.

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Dependent Filing Requirement Raised

The most significant change raises the income at which a dependent must file a tax return. Fewer dependents will need to file, meaning more families can exclude a dependent’s earnings from their household income. For some, lower household income will result in newly qualifying for Medicaid or receiving a higher premium tax credit.

Starting this year, a single dependent under age 65 will be required to file if earned income is greater than $12,000, compared to $6,350 in 2017. A dependent also must file if unearned (investment) income exceeds $1,050 (unchanged by the new law), or if gross income is higher than some combination of earned and unearned income. This change is effective for 2018 and sunsets after 2025.

Income and Deduction Changes

The new law takes alimony off the tax return altogether for newly divorced or separated couples. Previously, the spouse paying alimony would deduct those payments and the spouse receiving alimony would count them as income, both affecting MAGI. Starting with judgments after January 1, 2019, neither spouse will include alimony on the tax return. People whose divorce decrees were finalized prior to that date can choose to adopt this new rule in a modification of their current agreement.

Student loan debt that is forgiven due to the death or disability of the student is no longer included as income, lowering MAGI for the affected students. Moving expenses are no longer deductible, except by members of the Armed Forces. Both provisions sunset after 2025. The tuition and fees deduction, which can reduce income by up to $4,000 for people with higher education expenses, expired at the end of 2017 and was not extended in the tax bill. However, Congress has renewed it retroactively in the past and may do so again.

Household Determination Unchanged

The rules about who can be claimed as a dependent don’t change, even though personal exemption deductions are eliminated. While taxpayers will no longer subtract a per-person amount from adjusted gross income on the tax return, dependents will still be determined according to the usual rules. Household size for Medicaid and marketplace eligibility will remain the same.

Increased Exemption Eligibility

One non-MAGI change is noteworthy. Fewer people will pay the shared responsibility fee in 2018 (before it’s repealed in 2019) because tax-filing will be triggered at a higher income, qualifying more people for an exemption. For example, a single person doesn’t need to file if income is less than $12,000 in 2018, compared to $10,400 in 2017. However, people who are married filing separately now must file regardless of income so won’t be eligible for that exemption.

Additional Resources

Reference Guide: Yearly Guidelines and Thresholds | View reference guide

Health Assister’s Guide to Tax Rules | View guide

Webinar: Determining Households and Income for PTC and Medicaid | View webinar

Defining Income and Households Resource List | View resources