Determining Eligibility for Medicaid and Health Insurance Tax Credits:
How to Calculate Your Modified Adjusted Gross Income (MAGI)
Presentation for the Tribal Self-Governance Advisory Committee
Sam Ennis, J.D.
Sonosky, Chambers, Sachse, Endreson & Perry, LLP
February 26, 2014
[email protected]
1
What is Modified Adjusted Gross Income?
• MAGI is a formula used to determine your income for the
purposes of certain federal programs.
• MAGI is combined with your household composition to
establish your percentage of the federal poverty level. This
percentage governs eligibility for:
•
•
•
•
Medicaid and the Children’s Health Insurance Program
Advance premium tax credits in the Marketplaces created by the
Affordable Care Act
Some American Indian and Alaska Native cost-sharing protections
Some exemptions from the individual mandate.
2
Today’s Presentation:
How to Calculate and Apply MAGI
3
Presentation Overview
•
Acronyms and Vocabulary
•
Determining Income under MAGI
•
•
AI/AN-specific income exclusions
The General Welfare Doctrine
•
Determining Household Size Under MAGI
•
Practical Uses for MAGI
•
Frequently Asked Questions
4
Acronyms and Vocabulary
5
Acronyms 101
ACA = Patient Protection and Affordable Care Act
AI/AN = American Indian and Alaska Native
ANCSA = Alaska Native Claims Settlement Act
APTC = Advance Premium Tax Credit
CHIP = Children’s Health Insurance Program
CMS = Centers for Medicare and Medicaid Services
6
Acronyms 102
FPL = Federal Poverty Level
GWD = The General Welfare Doctrine
IHS = Indian Health Service
IRS = Internal Revenue Service
MAGI = Modified Adjusted Gross Income
7
Vocabulary 101
• IRS MAGI
•
How the IRS calculates MAGI for the purposes of
establishing eligibility for:
• APTCs
• AI/AN cost-sharing protections in the Marketplaces
• Medicaid MAGI
•
How CMS calculates MAGI for the purposes of
establishing Medicaid eligibility.
8
Vocabulary 102
•
AI/AN income
•
•
•
Categories of income that are specific to AI/ANs.
Both Medicaid MAGI and IRS MAGI exclude certain types of
AI/AN income.
Individual Mandate
•
•
Requirement that all individuals either obtain a minimum level
of health insurance coverage by March 31, 2014 or pay a
penalty.
Exemptions for (1) members of an Indian tribe, Alaska Native
village, or ANCSA regional or village corporation, and (2)
anyone who is eligible for IHS services.
9
Vocabulary 103
• Marketplaces
•
•
ACA-created website where you can compare private
health insurance options, purchase health insurance,
apply for Medicaid, and determine eligibility for
premium assistance, cost-sharing protections, and
individual mandate exemptions.
Also called “Exchanges.”
10
Important Note Before We Start!
11
Medicaid MAGI Does Not Apply to Everyone
• Prior to the ACA, Medicaid eligibility was determined by an
“income and assets” test.
• For most Americans, the ACA replaced the income and assets
test with MAGI.
• Certain groups of individuals are statutorily excluded from
Medicaid MAGI. Their Medicaid eligibility is still determined
according to their State’s pre-ACA income and assets test.
• 42 C.F.R. 435.603(j).
12
Who is Exempt from Medicaid MAGI?
• Individuals whose eligibility for Medicaid does not require a
determination of income.
• Individuals receiving Supplemental Security Income;
• Individuals for whom the State relies on a finding of income made by an
Express Lane agency.
• Individuals ages 65 or older when age is a condition of
eligibility.
• Individuals who are eligible for Medicaid based on blindness
or disability.
13
Who Else is Exempt from Medicaid MAGI?
• Individuals requesting coverage for a Medicaid eligibility
group that covers:
•
•
•
•
Nursing facility services or an equivalent level of care in another institution
Home and community-based services furnished under a waiver or State plan
Home health services
Personal care services
• Individuals whose eligibility is being determined solely for the
purpose of obtaining Medicare cost-sharing assistance.
• Individuals whose eligibility is being determined solely during
an evaluation of whether they qualify for coverage as
medically needy.
14
Why Does This Distinction Matter?
• This presentation covers the distinctions between IRS
MAGI and Medicaid MAGI.
• Unless specifically noted, we will not analyze the
eligibility rules for individuals who are exempt from
Medicaid MAGI and who remain subject to the preACA “income and asset” test.
15
Questions So Far?
16
AI/AN Income Exemptions Under Medicaid MAGI
17
The MAGI Calculation
•
The IRS calculates IRS MAGI by taking an individual’s adjusted
gross income (as determined for federal income tax purposes)
and adding back the amount of certain tax deductions for:
•
•
•
Foreign income and housing costs
Tax-exempt interest
Social Security and railroad retirement benefits
•
26 U.S.C. § 36B(d)(2)(B).
• The resulting number is called your “modified adjusted gross
income.”
• CMS calculates Medicaid MAGI by taking IRS MAGI and deducting
additional types of income (including AI/AN income).
•
42 C.F.R. § 435.603(e).
18
Keep in Mind
• AI/AN income is treated differently under IRS MAGI and Medicaid
MAGI.
•
•
Under IRS MAGI, many AI/AN income exclusions are conditional, and only
apply in certain circumstances.
Under Medicaid MAGI, AI/AN income exclusions are not conditional.
• The following discussion of AI/AN income exemptions applies to
Medicaid MAGI.
•
•
A full discussion of the pre-conditions for IRS MAGI exemptions is beyond the
scope of this presentation.
Please contact the presenter, Sam Ennis ([email protected]), for
additional materials on the treatment of AI/AN income under IRS MAGI.
19
Exempt AI/AN Income: Summary
• Distributions from ANCSA Corporations and Settlement Trusts
• Distributions from trust/reservation property (excludes gaming per
capita payments)
• Income from property and rights related to hunting, fishing, and natural
resources
• Income from the sale and use of cultural/subsistence property
• Student financial assistance provided by the Bureau of Indian Affairs
• Any other miscellaneous income that the IRS exempts from taxation
(either currently or in the future)
20
Where Do I List Exempt AI/AN Income?
• The following slide is a screenshot of Appendix B
of the Marketplace applications.
• Appendix B is where AI/ANs are asked to
document their exempt AI/AN income.
• List any such income in Appendix B to ensure
that it is excluded from your Medicaid MAGI.
21
Appendix B – Indian Income
22
Special Note on Medicaid MAGI – Gaming Payments
• Per capita payments from Indian gaming are taxable and
are not excluded from either IRS or Medicaid MAGI.
• In a Marketplace application, you should include the
amounts you receive from Indian gaming per caps where
it asks you to list your “Other Types of Income” outside
of employment wages.
• Do not list gaming per cap income in Appendix B, which
asks for AI/AN income.
• Appendix B asks about income that is exempt from Medicaid
MAGI. Gaming per capita payments are not exempt.
23
Exempt AI/AN Income – ANCSA
• Distributions from Alaska Native Corporations and
Settlement Trusts (42 C.F.R. § 435.603(e)(3)(i)).
• Cash distributions from an ANCSA Corporation or settlement
trust
• Stock or bonds issued by an ANCSA Corporation
• A partnership interest distributed by an ANCSA Corporation, as
well as subsequent partnership distributions
• Land or an interest in land (including land or an interest in land
received from an ANCSA Corporation as a dividend or distribution
on stock)
24
Exempt AI/AN Income – Trust Distributions
• Distributions from any property held in trust, subject to
Federal restrictions, located within the most recent
boundaries of a prior Federal reservation, or otherwise
under the supervision of the Secretary of the Interior (42
C.F.R. § 435.603(e)(3)(ii)).
• Rents from any such lands and any structures on the land (housing,
retail facilities, etc.)
• Royalties or other compensation received from oil and gas
production, mineral extraction, timber harvesting, and similar
activities
• Profits or revenues derived from economic activity on the land,
operation of motels, retail outlets, etc.
25
Exempt AI/AN Income – Natural
Resources and Trust Property
• Distributions and payments from rents, leases, rights of way, royalties, usage rights, or
natural resource extraction and harvest from (A) Rights of ownership or possession in
property held in trust, subject to Federal restrictions, located within the most recent
boundaries of a prior Federal reservation, or otherwise under the supervision of the
Secretary of the Interior; or (B) Federally protected rights regarding off-reservation
hunting, fishing, gathering, or usage of natural resources; and
• Distributions resulting from real property ownership interests related to natural
resources and improvements (A) Located on or near a reservation or within the most
recent boundaries of a prior Federal reservation; or (B) Resulting from the exercise of
federally-protected rights relating to such real property ownership interests (42 C.F.R.
§ 435.603(e)(3)(iii)-(iv)).
•
•
Profits from the sale, lease, or harvest of mineral, timber, and other such resources
Income derived from hunting, fishing, gathering, and harvesting fish, wildlife, and plant
resources pursuant to Federally-protected rights, including off-reservation rights
26
Exempt AI/AN Income – Cultural Property
• Payments resulting from ownership interests in or usage rights to
items that have unique religious, spiritual, traditional, or cultural
significance or rights that support subsistence or a traditional
lifestyle according to applicable Tribal Law or custom (42 C.F.R. §
435.603(e)(3)(v)).
• Property sold for use in healing or spiritual ceremonies, such as sage or
sweetgrass
• Sales of artwork, pottery or jewelry with cultural or religious significance,
such as traditional American Indian and Alaska Native crafts
• Handicrafts made by Alaska Natives from fish and wildlife resources taken
for personal or family consumption
• Proceeds of sales of subsistence fish and game
27
Exempt AI/AN Income – Student Aid
• Student financial assistance provided under the
Bureau of Indian Affairs education programs (42
C.F.R. § 435.603(e)(3)(vi)).
• Student financial assistance provided under programs in
title IV of the Higher Education At of 1965, as amended
28
Exempt AI/AN Income – Federal Income Tax Exclusions
• Medicaid MAGI includes all AI/AN income exemptions that
the IRS or CMS applied prior to the ACA.
• For example, per capita shares distributed to Indians pursuant to the
Indian Tribal Judgment Funds Use or Distribution Act (25 U.S.C. §
1401, et seq.), including interest and investment income earned on
Judgment Funds while under administration
• In the future, any other types of AI/AN income that the IRS
excludes from federal taxation is therefore also excluded
from Medicaid MAGI.
29
Questions So Far?
30
The General Welfare Doctrine
31
The General Welfare Doctrine - Background
• Payments from government social benefit programs are
excluded from federal income taxation (and both IRS and
Medicaid MAGI).
• Government may be Tribal, federal, state, local, or foreign.
• The IRS outlined the categories of excluded GWD income
in Notice 2012-75.
• Notice is still in draft form and will not be finalized until later in
2014.
• Senate has introduced Tribal General Welfare Exclusion Act of
2013 to codify existing rules (currently still in Committee).
32
The General Welfare Doctrine – What Counts?
• In order to qualify for the GWD, a payments must be:
• Provided pursuant to a specific Tribal program with written
qualifications
• Available to any Tribal member who satisfies the program qualifications
• Distributed without favoring members of the Tribe’s governing body
• Aimed towards benefitting social welfare, not compensating for
services
• Neither lavish nor extravagant
• Under current rules, the IRS decides whether a payment
qualifies for the GWD.
• Tribal governments or individual AI/ANs cannot make this
determination on their own.
33
The General Welfare Doctrine – Tribal Considerations
• GWD applies to payments made from Tribal governments, agencies,
and instrumentalities to Tribal members, their spouses, and their
dependents.
• Tribal programs designed to help establish Indian-owned businesses
on or near a reservation may classify under GWD.
• Such payments would not count if made by non-Tribal governments.
• Source of funding used for benefit payments is irrelevant.
• Revenues may derive from levies, taxes, service fees, Tribal businesses,
casinos, etc.
• Key issue is nature of program, not source of funding.
34
The General Welfare Doctrine – Exempt Income Summary
• Housing assistance
• Education assistance
• Programs serving elders and individuals with disabilities
• Cultural and religious programs
• Transportation programs
• Disaster relief
35
GWD Exemptions – Housing Assistance
• Programs for a Tribal member’s principal residence that:
• Assist in making mortgage or rent payments for residences on
or near a reservation
• Enhance habitability of housing, such as by remedying water,
sewage, sanitation service, or heating or cooling issues
• Provide basic housing repairs or rehabilitation
• Assist in paying utility bills and charges (such as water,
electricity, and gas).
36
GWD Exemptions – Education Assistance
•
Providing students with:
•
•
•
•
Transportation to and from school
Tutors;
School supplies, including clothing, backpacks, laptop computers, musical instruments, and sports
equipment
Providing student tuition or room and board payments for:
•
•
•
•
•
An accredited college or university
Educational seminars
Vocational education
Technical education
Adult education, continuing education, and alternative education
• Programs designed to promote job placement or training, including allowances
for:
•
•
•
Expenses for interviewing or training away from home (such as travel, auto expenses, lodging, and
food)
Tutoring
Clothing (suits, uniforms, etc.)
37
GWD Exemptions – Elder and Disability Care
• Programs for individuals who are either (1) ages 55 and older
or (2) physically challenged, including:
• Meals through home-delivered meals programs or at a community
center
• Home care, such as assistance with preparing meals or doing chores;
• Day care outside the home
• Local transportation assistance
• Travel expenses for doctor appointments or other medical care
• Transportation costs and admission fees to attend educational, social,
or cultural programs offered by the Tribe or another tribe
• Improvements to adapt housing to special needs (such as grab bars
and ramps)
38
GWD Exemptions – Cultural and Religious Programs
• Payment of expenses such as transportation, food, and lodging associated with
cultural or religious programs.
•
•
Cultural, social, or community activities such as pow-wows, ceremonies, and traditional
dances
Visiting Indian reservations or sites that are culturally and historically significant
• Payments for the cost of receiving instruction about an Indian tribe’s culture,
history, and traditions (for example, traditional language, music, and dances)
• Payment expenses related to bereavement events, such as hosting or attending
wakes, funerals, burials, or similar functions
• The provision of nominally-valuable items of cultural significance, or nominal cash
honoraria, to medicine men or women, shamans, or similar religious or spiritual
officials to recognize their participation in cultural, religious, and social events
39
GWD Exemptions – Miscellaneous Programs
• Bus, taxi, or public transportation fares from a reservation to
public facilities (such as medical clinics and grocery stores)
• Transportation, meals, and lodging for eligible individuals receiving
medical care away from home
• Assistance to individuals in exigent circumstances (such as victims
of abuse), including the costs of food, clothing, shelter,
transportation, auto repair bills, and similar expenses
• Relocation and shelter for individuals displaced from their homes
due to fire, natural disaster, etc.
• Emergency bus fare, hotel rooms, or meals for an individual who is
stranded off the Indian reservation
40
Questions So Far?
41
Calculating Household Size
42
Why are “Households” Important?
• An individual’s “household” is combined with MAGI to
calculate that individual’s percentage of FPL.
• Generally, the combined MAGI of individuals within the household or
tax unit determines the household’s income.
• The household’s income, translated as a percentage of FPL,
determines each individual’s eligibility for Medicaid, APTCs, and other
programs.
• CMS and IRS calculate “household” differently.
• CMS calculation governs Medicaid eligibility
• IRS calculation governs eligibility for:
•
•
APTCs
Certain AI/AN cost sharing protections
43
Medicaid MAGI: What is a “Household”?
• Medicaid MAGI “household” rules are set out in 42
C.F.R. § 435.603.
• Each person’s household is calculated individually under
Medicaid MAGI.
• Members of the same nuclear family can have different
“household” sizes under Medicaid MAGI.
44
Medicaid MAGI: What are the Household Categories?
• Three separate categories for determining Medicaid
household size:
(1) Tax filers who are not claimed as tax dependents by anyone
else
(2) People claimed as tax dependents (even if they file their own
taxes)
(3) A third class (“Category 3”) comprised of:
• Non-tax filers who are not claimed as a tax dependent by anyone else;
• Individuals claimed as a tax dependent by someone other than a spouse
or parent; and
• Individuals ages 19 and under (or, at the option of the State, 21 and
under for students) who are either:
•
•
Living with two parents who do not expect to file a joint tax return; or
Claimed as a tax dependent by a non-custodial parent .
45
Medicaid MAGI: Who is in Your Household?
• Tax filers not claimed as a dependent:
• Yourself
• Spouse (if filing jointly or living together)
• Claimed federal income tax dependents.
• Tax dependents:
• All members of the household of whoever claims you
as a tax dependent
• Spouse (if living together and not otherwise included)
46
Medicaid MAGI: Who is in Your Household?
• Category 3:
• Yourself
• If living with you:
• Your spouse
• Your children under Medicaid age (19 years old,
or 20-21 at the election of each State) living who
live with you
• For children under Medicaid age, your siblings
under Medicaid age and parents
47
Medicaid MAGI: Pregnant Women
• If there is a pregnant woman in your
household:
• For the pregnant woman, her household also includes
the number of children she expects to deliver.
• For individuals whose household includes a pregnant
woman, each State chooses whether the pregnant
woman counts as one person, two people, or one
person plus the number of expected children.
48
IRS MAGI: Who is in Your Household?
• A household is comprised of any individual(s) for
whom the taxpayer expects to claim a deduction for
a personal tax exemption (known as a “tax unit”).
26 U.S.C. § 36B(d); 26 C.F.R. § 1.36B-1. This
includes:
• The individual taxpayer
• His or her spouse
• Dependents, such as children and other relatives who
meet certain requirements and do not claim their own
exemptions
49
IRS MAGI Households:
Special Considerations
• Each person within the “tax unit” has the same household
number. However, there can be multiple tax units within the
same family.
• John and Sarah are divorced and have one son, Mike, who lives with
Sarah.
• John claims Mike as a dependent for tax purposes, and Sarah does not.
• John and Mike’s tax unit is two people. Sarah’s tax unit is one person.
• Certain circumstances that can change IRS household status:
• Birth, adoption, or death of a child
• Marriage
• Divorce/legal separation
50
Calculating Household Income – Medicaid MAGI
• The total household income under Medicaid MAGI is the sum
of each household member’s MAGI, excluding:
• Children who are (1) included in the household of their natural,
adopted, or step parent and (2) who are not expected to file a federal
income tax return for that year; and
• Any other individuals included in a household who (1) expect to be
claimed as a tax dependent by another taxpayer and (2) are not
expected to file a federal income tax return for that year.
• 42 C.F.R. § 405.603(d).
• Because people living in the same house might have different
“households” under Medicaid MAGI, this calculation can
differ for members of the same family.
51
Calculating Household Income – IRS MAGI
• The total household income under IRS MAGI is
the MAGI of the taxpayer, plus the MAGI of
every other individual:
• For whom the taxpayer claim a personal exemption
deduction; and
• Who is required to file a federal income tax return.
• 42 C.F.R. § 405.603(d).
52
Questions So Far?
53
Applying MAGI: In Practice
54
Why Does Household Income Matter?
(All FPL statistics are for contiguous 48 States, excluding AK/HI)
People in
Family
100% FPL (in 138% FPL
household
(Medicaid
income)
Expansion)
200% FPL
(CHIP)
300% FPL
(Zero Cost
Sharing Plan)
400% FPL
(APTC)
1
$11,670
$16,105
$23,340
$35,010
$46,680
2
$15,730
$21,707
$31,460
$47,190
$62,920
3
$19,790
$27,310
$39,580
$59,370
$79,160
4
$23,850
$32,913
$47,700
$71,550
$95,400
5
$27,910
$38,515
$55,820
$83,730
$111,640
6
$31,970
$44,119
$63,940
$95,910
$127,880
7
$36,030
$49,721
$72,060
$108,090
$144,120
8
$40,090
$55,324
$80,180
$120,270
$160,360
Additional
Persons
$4,060
$5,603
$9,020
$12,180
$18,040
55
Where Else Does FPL Apply Under the ACA?
• Eligibility for certain AI/AN cost-sharing protections.
•
•
AI/ANs who are (1) enrolled in a qualified health plan through a
Marketplace and (2) whose household income is not more than 300% FPL
are exempt from cost-sharing (deductibles, co-payments, co-insurance,
and similar charges). 42 U.S.C. § 18071(d)(1).
CMS has interpreted this protection as only applying to AI/ANs with
household income between 100% and 300% FPL.
• Eligibility for certain exemptions from the individual mandate:
• Any individual who is determined ineligible for Medicaid solely based
on a State’s decision not to expand Medicaid under the ACA. 45 C.F.R.
§ 155.605(g)(4).
• Individuals where the premium cost of (1) an employer-sponsored
self-only plan or (2) the lowest cost bronze plan in the individual’s
state exceeds 8% of MAGI. 26 U.S.C. § 5000A(e)(1).
56
Frequently Asked Questions
57
Frequently Asked Questions
Q: Ranching and farming are considered subsistence activities on
our reservation. Is this considered excluded “subsistence”
income for the purposes of the Medicaid MAGI exclusion?
A: If ranching and farming occur on a reservation, any income
derived from these activities is excluded from Medicaid MAGI.
Per capita payments for farm and ranch leases on tribal lands
or lands that have ever been tribal lands are also excluded
from Medicaid MAGI.
58
More Frequently Asked Questions
Q: If you receive an IRS 1099 form for a certain type of income, is
that income automatically considered taxable and included in
MAGI?
A: No. A 1099 is considered a “signpost” that indicates earned
income, but it can be appealed if you think that it includes
tax-exempt AI/AN income. And even if the income is
ultimately taxable and included in IRS MAGI, it might still be
excluded from Medicaid MAGI.
59
Still More Frequently Asked Questions
Q: The ACA allows Tribes to pay for their members’ health
insurance premiums in the Marketplace. Are these payments
considered taxable income or included in MAGI?
A. No. Tribal premium sponsorship payments are neither
taxable nor included in Medicaid MAGI. Also, a person
receiving sponsorship payments may still receive an APTC
despite not personally paying premium costs.
60
Even More Frequently Asked Questions
Q: My Tribe makes a quarterly payment to enrolled children. Are
they taxable and included in MAGI?
A: It depends on the purpose of the payment. For example, if it
is gaming per capita distribution, then it is both taxable and
included in MAGI. If it is a per capita payment from trust
resources, then it is neither taxable nor included in MAGI. If it
offsets the cost of child care or provided as part of an
educational fund, it might be excluded from both taxation and
MAGI under the General Welfare Doctrine.
61
Presenter
Sam Ennis is an associate in the San Diego office of Sonosky, Chambers,
Sachse, Endreson & Perry LLP, which specializes in representing Tribal
interests throughout the United States. Mr. Ennis works in all areas of
the firm's practice, with a focus on health law and Tribal self-governance.
Mr. Ennis graduated with honors from the University of Virginia, and
then from the UCLA School of Law, where he was Chief Comments Editor
of the UCLA Law Review, interned at the United States Commission on
Civil Rights, and participated in the UCLA Tribal Legal Development
Clinic.
Mr. Ennis is a member of the National Indian Health Board Medicare &
Medicaid Policy Committee and has worked in conjunction with the
Centers for Medicare and Medicaid Services Tribal Technical Advisory
Group. He also serves as a consultant to the National Indian Health
Board with regard to training on and implementation of the Affordable
Care Act and Indian Health Care Improvement Act. He has authored
numerous published articles on various aspects of Federal Indian law.
62