06. How is income calculated?
Eligibility for ConnectorCare is based on an individual’s Modified Adjusted Gross Income (MAGI) for his or her tax household for the tax year in which he or she is enrolled in a ConnectorCare plan. Eligibility for ConnectorCare and the amount of the Advance Premium Tax Credit is based on the applicants’ best estimate of their annual MAGI income for the tax year as they expect it to be shown on IRS Form 1040 when they file their return in the following year.
What income is counted? The MAGI rules count all income that would be included in adjusted gross income (AGI) on the applicant’s federal tax return for the tax year. In addition the MAGI rules count three types of non-taxable income: Non-taxable social security income, tax exempt interest income and certain tax exempt foreign income. These amounts are shown on IRS Form 1040 and associated schedules as shown below:
Adjusted Gross Income is on line 37. Line 37 equals the difference between Total income on line 22 less adjustments to income online 36.
Plus the following nontaxable income
- Non-taxable social security income (line 20a (total social security) less line 20b (taxable social security))
- Tax exempt interest income (line 8b), and
- Tax exempt foreign income (Form 2555)
Adjusted Gross Income is on line 7. Line 7 includes additions to income from Schedule 1 line 22, less adjustments to income from Schedule 1 line 36.
Plus the following nontaxable income
- Non-taxable social security income (line 5a (total social security) less line 5b (taxable social security))
- Tax-exempt interest income, (line 2a), and
- Tax-exempt foreign income. (Form 2555)
This would be easy if financial eligibility were based on the most recent year’s tax return, but eligibility is based on what applicants expect their current MAGI to be. A past year’s return will be helpful only if the current year is likely to be similar to the past year. There are several excellent guides to the MAGI rules from national advocacy organizations listed in the Resource section. The website at IRS.gov also contains extensive information including interactive tools designed for consumers. In some situations, applicants may need the advice of a tax professional. Low income tax clinics are listed in the Resource section.
Some common types of income that are not taxable include: welfare payments such as TAFDC and SSI, child support income, gifts and inheritances, Veteran’s Administrations payments, and Worker’s Compensation. A recent change in the tax laws has complicated the treatment of alimony. It is income for the recipient and a deduction for the payer if the alimony order was made before Jan. 1, 2019 but not if the alimony order was made on Jan. 1, 2019 or later. Tax losses from self-employment, rental income or investment income that reduce AGI will also reduce MAGI. Pre-tax deductions from earnings that reduce the amount of taxable wages will also reduce MAGI. To the extent that people make decisions that will reduce their AGI, such as purchasing certain IRAs, they will also reduce MAGI for purposes of ConnectorCare eligibility.
Whose income is counted? The tax household includes the tax filer and spouse, if married filing jointly, and anyone they may claim as a dependent on their federal return. Under IRS rules, dependents are not limited to minor children. In certain circumstances, adult children, elderly parents, unmarried partners and other individuals supported by the tax filer may also qualify as dependents.
The tax household determines family size. The income of the tax filers (including a spouse filing jointly) always counts. However, the income of a dependent is included in the MAGI of the tax household only if the dependent’s income is high enough to require him or her to file a return under IRS rules. An unmarried child claimed as a dependent with earnings as high as $12,000 (and no unearned income) is not required to file in 2018. For purposes of determining whether a dependent must file a return, the IRS does not count the dependent’s non-taxable social security as unearned income. The income of a dependent who is not required to file a return but chooses to do so, e.g. to obtain a refund, does not count.
Consult IRS Publication 501 or the guides in the Resource section for more information on who may qualify as a dependent, and the filing requirements for dependents.
How does MAGI affect eligibility? Once the MAGI of the tax household has been calculated, it is compared to the applicable federal poverty level (FPL) standards for the family size to determine if the amount is at or under the upper income levels for ConnectorCare (300% FPL). If MAGI is over 300% FPL but not over 400% FPL, the applicant may qualify for an Advance Premium Tax Credit for a Qualified Health Plan. The federal government adjusts the Federal Poverty Level standards every year in late January. However, under federal law, the Connector uses the most recent FPL at the time open enrollment begins in November for the following calendar year. This is why the Connector uses the 2018 FPL standard that was in effect in November 2018 to determine eligibility for any month in 2019. See Appendix 1 for 2019 amounts.
Differences between Connector MAGI and MassHealth MAGI. MassHealth also use MAGI to determine financial eligibility for most people under age 65. However, MassHealth is based on current monthly income, not expected annual income, and MassHealth makes various exceptions to both the tax household rules and the income-counting rules applied in the Connector. If an individual’s current monthly MassHealth MAGI income is over MassHealth income eligibility standards, but expected annual Connector MAGI is under 100% FPL, a special “safe harbor” rule deems the individual’s income to be under 100% FPL for MassHealth too. 130 CMR 506.008(D)
26 CFR 1.36B, 45 CFR 155.305, IRS Publication 525 Taxable and Non-taxable Income, and 501 Standard Deduction and Filing Information.