Various types of income are counted by Covered California for subsidy eligibility.
One of the biggest questions regarding eligibility for premium assistance or discounts under the new Affordable Care Act is what type of income must the applicant count? The Covered California CalHEERS enrollment website will have a drop down menu to prompt households on the type of income they should be entering for eligibility.
All sources of household income
Absolutely critical is that the calculated amount is “Household” income. That means everyone who has wages and income, including not only the head of household, but the spouse, children and other dependents, must be included if they are part of the application for health insurance. This means I must include the interest from my son’s savings account if I must include that amount on my tax return of if he must file his own tax return. See also: The IRS definition of a household member
Modified Adjusted Gross Income
The official definition of the household income is the Modified Adjusted Gross Income (MAGI). The term “Modified” is applied because the Adjusted Gross Income from the Federal Tax Form is further modified with some additions and subtractions depending on the circumstances. Some of the modifications are critical for ultimately determining Medi-Cal eligibility. The UC Berkeley Labor Center document describes the modifications. See also: Monthly Household Income Estimator with spreadsheet
This is household income definition from the IRS Form 8962 Premium Tax Credit.
Modified AGI. For purposes of the PTC, modified AGI is the AGI on your tax return plus certain income that is not subject to tax (foreign earned income, tax-exempt interest, and the portion of social security benefits that is not taxable). Use Worksheet 1-1 and Worksheet 1-2, later, to determine your modified AGI.
Covered California Income Section
It can be complicated to determine what is counted as income for Covered California and the Modified Adjusted Gross Income. Covered California presents income and deductions one way on their enrollment pages while the IRS refers to federal tax filing forms. In addition, some of the income excluded for federal taxes is included in the Modified Adjusted Gross Income (MAGI).
Extra deductions deflate income
If you hand your W-2s, 1099s, and a box of receipts to your tax preparer every year to do your taxes, figuring out what is actually considered income can be a little confusing for the ACA tax credits. Even for the seasoned do-it-yourself tax people, deciding what dollar amounts Covered California wants in which income sections can be complicated. Even though your income might be correct, there’s the possibility the wrong deductions are added to the Income Deduction deflating the MAGI and setting you up for the repayment of excess tax credits the following year.
Remember, the MAGI includes the income of all the members of the household, not just the primary tax filer. AGI is the Adjusted Gross Income from either the Form 1040EZ, 1040A, or 1040. It is modified by adding untaxed Social Security benefits and tax-exempt interest. Some of the income reported on the 1040s actually comes from other supporting documents such as Schedule C, D, E and F. Unfortunately, the Covered California income section of the enrollment application doesn’t mirror the 1040s so it can be confusing to determine what they are asking for.
Income and Deductions
Covered California household income and deduction sections.
There are four sections to the Covered California Income section: Employment Income, Self-Employment Income, Other Income and Income Deductions. All these sections represent different lines on the 1040 forms. In one sense, it doesn’t matter if you put all your income in one section as long the Income Summary accurately reflects what you estimate will be your MAGI for the current tax year. However, if you can separate the income and deductions into the proper sections, it makes it easier to perform mid-year adjustments on specific income streams instead of one large composite amount.
Monthly vs. Annual income
MAGI by 1040 lines
The following chart represents forms of income and adjustments (deductions) used to calculate the MAGI. The CC Type indicates the Covered California income section the income or deduction would be entered into. The other columns show which line from the respective form the income or deduction is pulled from.