APTC & CSR Eligibility – Income and Household Size

 

Advanced premium tax credits (APTCs) and cost-sharing reductions (CSRs) help make the Qualified Health Plans (QHPs) available through HealthSource RI (HSRI) affordable for low- and middle-income Rhode Islanders.  To be eligible for ATPCs or CSRs, an applicant must

(In addition, APTC recipients must file a tax return for any years in which APTCs are received.  Married APTC recipients are also required to file jointly.)

This article describes those MAGI income limits.

MAGI is a tax concept. Determining MAGI for a tax filer with consistent income and household situation is relatively straightforward. For those who do not have recent tax returns, or for those whose income or household situations have changed substantially since their most recent tax return, determining MAGI can be more complicated.

Because MAGI is based on tax law, some questions about MAGI may need to be answered by professional tax advisers.

For this whole section, keep in mind that APTC and CSR eligibility is based on a projection of full year income for the year in which tax credits are granted.  For example, a person applying in December of 2015 for coverage in 2016 will need to project her 2016 income.  This is different from eligibility for MAGI Medicaid, which is generally based on current monthly income (see MAGI Medicaid – Income).

It is also important to be as accurate as possible with this income projection.  If the projection is too low, then the applicant will likely owe extra money to the IRS (or receive a smaller refund than expected) at the end of the tax year.  If the projection is too high, then the IRS may owe money to him.

Income Limits for APTCs & CSRs

To be eligible for APTCs, the applicant’s household MAGI must be below 400% of the federal poverty level (FPL).

To be eligible for CSRs, the applicants household MAGI must be below 250% of FPL.

For the purposes of eligibility for APTCs and CSRs, FPLs are measured against the poverty levels in effect as of the first day of open enrollment for the coverage year in question.  That means that the relevant FPLs will be from the year prior to the coverage year.

For 2016 coverage (which is based on the FPLs in effect as of November 2015), those income limits will calculate to:

APTC & CSR Income Limits (for 2017 coverage)

HH SizeCSR Income Limit
(250% of FPL)
APTC Income Limit
(400% of FPL)
1$29,700$47,520
2$40,050$64, 080
3$50,400$80,640
4$60,750$97,200
5$71,100$113,760
** Income limits for 2017 coverage will be based on the FPLs in effect as of November 2016.

 

Because of the way that APTCs are calculated, it is also possible for some applicants with income below 400% FPL will not qualify.  That is most likely to occur with applicants with income closer to 400% of FPL, with younger applicants, and with applicants where part of the tax household has another form of coverage (e.g. Medicaid, Medicare, employer-sponsored).

Household Size

APTC and CSR eligibility is based on the “tax household.”  That means that, for tax filer applicants, the household consists of the applicant, the applicant’s spouse, and any people whom the applicant expects to claim as a tax dependent for the relevant year.  For tax dependent applicants, the household consists of the person claiming the applicant as a dependent, that person’s spouse, and all other tax dependents expected to be claimed by that person.

Unlike in Medicaid, pregnant women are counted as one person (see MAGI Medicaid – Household Size). Tax credits cannot be adjusted to reflect the new household until the baby is born.

Determining MAGI from a Tax Return

To determine MAGI from a tax return, the first step is to identify the applicant’s “Adjusted Gross Income” (or “AGI”). AGI is found on the following lines of a tax return:

Tax FormAGI Line
1040Line 37 (bottom of first page)
1040ALine 21 (bottom of first page)
1040EZLine 4

There are then three “modifications” necessary to convert from AGI to MAGI:

  1. Add all non-taxable social security income, which can be calculated by subtracting line 20b from line 20a on the Form 1040, or by subtracting line 14b from line 14a on the Form 1040A (these figures do not appear on the 1040EZ).
  2. Add all tax-exempt interest, which can be found at line 8b of the Form 1040, or line 8b of the Form 1040A (this figure does not appear on the 1040EZ).
  3. Add all foreign earned income excluded from gross income, which can found by adding lines 45 and 50 of the Form 2555 (or at line 18 of Form 2555-EZ).

This calculation will yield an annual MAGI figure for the year corresponding to the most recent tax return.  But APTC and CSR eligibility is based on a projection of full year income for the year in which tax credits will be granted, so it’s important to account for any changes or expected changes since the last tax return.  (For example, for someone applying in December 2014 for QHP coverage in 2015, it is the projected 2015 income that is important.)

Example 1
John is 63-years old, applying for QHP coverage. His income has been steady for years. According to his most recent tax return, he earned $15,000 per year in taxable wages (line 7 of his 1040). He also collects $1,000 per month in Social Security (retirement) benefits, only half of which is taxable (so line 20a reads $12,000 and line 20b reads $6,000). His AGI (line 37) was $21,000 per year.  He expects his income to remain the same for the foreseeable future.
→ H
is MAGI is $27,000 per year. His untaxed Social Security benefit (of $6,000 per year) needs to be added back to his AGI of $21,000 to arrive at his MAGI.

Example 2
Now assume that John is applying in December of 2015 for coverage to be effective in 2016.  John also reports that he expects to stop working (and stop receiving earned income) half way through the coming year (i.e. after June 30, 2016), so his earned income will be half of what it was.  He does not expect his Social Security income to change.
→ John’s MAGI in the year documented in the tax return was $27,000 (see Example 1 above).  But the critical number is John’s projected 2016 income.  In the year documented in the last tax return, he worked all year and earned $15,000.  In the coming year, he only expects to earn $7,500, which is $7,500 less than before.  Therefore his projected 2016 MAGI is $19,500 ($27,000 minus $7,500).

Constructing MAGI Without a Tax Return

For applicants with no recent tax return, or applicants whose tax situation has changed substantially since filing their last tax return, constructing MAGI can be more complex. You essentially need to complete most of a hypothetical tax return with projected income and certain deductions to determine AGI and MAGI. The concept is still rooted in tax law.

  • If an element of income is included in taxable Gross Income (lines 7 through 21 of the 1040, lines 7 through 14 of the 1040A, or lines 1 through 3 of the 1040EZ), then it will be included in MAGI.
  • If a deduction is included among the “above-the-line” deductions accounted for before arriving at AGI (lines 23 through 35 of the 1040, or lines 16 through 19 of the 1040A), then the deduction will be subtracted out of MAGI.  (“Above-the-line” deductions are not included on the 1040EZ.)
  • Then the three “modifications” that convert AGI to MAGI (see above) must be considered.

There are numerous high-quality national resources on how MAGI is determined, and the rules are the same in every state. A useful summary is available at www.healthcare.gov/income-and-household-information/income, and very detailed account can be found in NHeLP’s The Advocates Guide to MAGI. It can also be helpful to refer to IRS publications on gross income, such as IRS Publication 17 or IRS Publication 525.

Here are some examples of income and deduction types and their treatment under the MAGI standard.

Income INCLUDED in MAGI

  • Taxable Salary and Wages;
    • Note that funds paid for pre-tax deductions are not counted included in income for this purpose. Common pre-tax deductions include health insurance premiums, flex spending accounts, commuter expenses, and retirement accounts.
  • All Social Security Income (even if not taxed), other than Supplemental Security Income (SSI);
    • The Social Security income of children and other dependents is sometimes not counted.  See the section below on “Whose Income Is Included” for more information.
  • Self-Employment Income (profits after expenses, as per rules on IRS Form 1040 Schedule C);
  • Unemployment Benefits;
  • Alimony Received;
  • Interest (even if not taxed);
  • Capital Gains;
  • Rental Income;
  • Taxable Investment Income (e.g. dividends);
  • Foreign Earned Income;
  • Military Retirement Pay;
  • Rhode Island Temporary Caregiver Insurance (TCI) Benefits;
  • Taxable Portion of Private Long-Term Disability Insurance Benefits;
    • Note that some income from private disability insurance policies is taxable and some is not. It depends on how the premiums for the policy were paid. Generally, the benefit is not taxed if the premiums were paid by the individual using after-tax money, and the benefit is taxed if the premiums were paid by the individual’s employer with pre-tax money. The insurance company providing the benefit should know what portion of the benefit is taxable (and therefor included in MAGI) and what portion is not.
  • Any other taxable income (e.g. cancelled debts, court awards, gambling winnings);

Income EXCLUDED from MAGI

  • Child Support Received;
  • Supplemental Security Income (SSI);
  • Temporary Assistance for Needy Families (TANF);
  • Rhode Island Temporary Disability Insurance (TDI) Benefits;
  • Worker’s Compensation;
  • Most Veteran’s Benefits;
  • Gifts;
  • Non-Taxable Portion of Private Long-Term Disability Insurance Benefits;
    • Note that some income from private disability insurance policies is taxable and some is not. It depends on how the premiums for the policy were paid. Generally, the benefit is not taxed if the premiums were paid by the individual using after-tax money, and the benefit is taxed if the premiums were paid by the individual’s employer with pre-tax money. The insurance company providing the benefit should know what portion of the benefit is taxable (and therefor included in MAGI) and what portion is not.
  • Parsonage Income for Clergy, to the extent excluded from AGI (line 37 of Form 1040);

Deductions that Decrease MAGI

  • Alimony Paid;
  • Student Loan Interest Deduction;
  • IRA Contributions (to a “traditional” IRA, not a Roth IRA);
  • Deductible Tuition and Fees;
  • All other deductions listed at Form 1040, lines 23 through 35.

“Deductions” that do NOT Decrease MAGI

  • Mortgage Interest Deduction
  • Other itemized deductions from Form 1040, Schedule A

Whose Income is Included?

Generally, the full MAGI income of every member of the applicant’s household must be counted in the household’s MAGI. (For more information on who is included in the applicant’s household, see “Household Size” above.)

The major exception is the income of children and dependents who are not expected to be required to file their own tax returns. The income of these dependent household members is not included in the household’s MAGI.

Generally, a dependent must file an income tax return (in addition to being included on the return of the person claiming him as a dependent) when his income exceeds a certain threshold. If an applicant does not know whether his dependent is required to file, it may be necessary to consult someone with tax expertise. IRS Publication 501 is also helpful.

Example 3
David has one minor son, Mark, whom he claims as a tax dependent. Mark collects $600 per month in Social Security (Survivors) benefits and has no other income. His Social Security benefits are not taxable. At that income, Mark is not expected to be required to file a separate income tax return.
→ Mark is not expected to be required to file a separate income tax return.  Therefore, his income does not count in David’s household MAGI.

Example 4
Same situation as Example 2 above, except that Mark now earns $7,000 per year in an after-school job. With that income, he is expected to be required to file an income tax return. His Social Security income is still not taxable.
→ 
In this case, Mark is expected to be required to file a separate income tax return.  Because Mark is filing his own return, all of Mark’s MAGI income counts as part of the David’s household MAGI.  Mark’s full MAGI income includes both his earnings from the after-school job, and all of his Social Security income. 

Medicaid MAGI & APTC MAGI – Differences

There are five differences between MAGI counting rules for the purposes of APTC/CSR eligibility as compared to MAGI counting rules for the purposes of Medicaid eligibility (see MAGI Medicaid – Income).

  1. APTC/CSR eligibility is based on a projection of annual income for the relevant tax year, while MAGI Medicaid eligibility is based on current monthly income.  (For more information on how MAGI Medicaid treats applicants with fluctuating income, see MAGI Medicaid – Income.)
  2. For MAGI Medicaid, lump sum income only counts as income in the month received.  For APTC/CSR eligibility, it would count towards the annual income projection.
  3. For MAGI Medicaid, scholarships, awards, or fellowship grants used for education purposes and not for living expenses are excluded from income, even if that income might be part of AGI.  No such additional exclusions are made for the purposes of APTC/CSR eligibility.
  4. For MAGI Medicaid, certain types of American Indian / Alaska Native income are excluded from countable income. See 45 C.F.R. § 435.603(e)(3) for a complete list.  No such exclusions are available for the purposes of APTC/CSR eligibility.
  5. For MAGI Medicaid, use the FPLs in effect at the time of application.  For APTCs and CSRs, use the FPLs in effect as of the first day of open enrollment for the relevant coverage year.

Example 5
John is single with no tax dependents, and he earns $2,000 per month at his job.  He also made a taxable withdrawal from his IRA of $12,000 in January. It is now March and he wants to apply for coverage.

→ For the purposes of Medicaid, John’s lump sum income from January does not count against him on his March application.  But his other income of $2,000 per month puts him over the MAGI Medicaid limit anyway.  For the purposes of APTCs/CSRs, the important number is his projected full year income for the year in question.  This year, his projected income is $36,000 ($2,000 per month from work, plus the $12,000 IRA withdrawal).  It does not matter that the January income came in before his application was filed and before his coverage will start.

Other Resources:

Author:  Sam Salganik
Date:  July 13, 2015

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