Medicaid Policy
Medicaid Policy
Calculate income for each individual to determine countable income. This process includes determining the gross countable income for each individual, deducting allowable expenses and combining the countable income for all individuals included in the household size. Complete a separate calculation for client statement of income and income through an electronic data source. The following sections outline the process of calculating income to complete a reasonable compatibility test.
A. Determine Gross Income
To determine taxable gross income, the agency will complete a best estimate of all countable income sources for each individual who has countable income. See 440-2 for income requirements and 440-4 for specific treatment of income.
Exception: When re-determining eligibility for UPP, or adding a household member to an ongoing UPP program, see section 1004 to determine countable income.
1. Complete a separate best estimate (435-2) for both the client statement of income and the income verified through an electronic data source.
a. Client statement of income is gathered using the application, review or other client statement sources.
b. Use available electronic data sources to verify current income.
c. Income that cannot be verified through an electronic data source, such as self-employment or unreported wages, must be verified by some other source.
d. Use the same budgeting methodology when determining income using both client statement and electronic data sources (as applicable).
2. After determining the monthly amount for each income source, combine each individual’s income sources to determine a gross monthly income amount for that individual.
B. Determine Modified Adjusted Gross Income (MAGI)
After determining the taxable gross monthly income for each individual, the agency will determine the MAGI income by deducting allowable expenses.
1. Individuals may deduct certain expenses they anticipate having to reduce their countable income. These expenses are the same expenses allowed by the IRS for tax purposes (Schedule 1 of 1040 form).
2. Unless questionable, accept client statement to verify expenses.
3. An individual does not have to file a tax return to deduct an allowable expense.
4. Use the expenses the individual expects for the tax year in which the agency is making a Medicaid eligibility determination.
5. Deduct the same monthly expenses from both client statement of income and electronic data sources of income.
6. The following are allowable expenses (IRS form numbers are included in case the agency must request verification for questionable expenses):
a. Educator expenses up to the limit of $250 per educator per tax year
i. The individual must be an educator.
ii. If the spouse is also an educator, they can each claim up to $250 a year.
b. Contribution to a traditional IRA.
· The individual or spouse must have earned income to take this deduction.
c. Alimony paid by the individual. Allow a deduction for alimony paid by an individual only if the divorce or separation agreement was in place before January 1, 2019. Do not allow a deduction of alimony payments when the divorce or separation agreement was created on or after January 1, 2019.
d. Certain business expenses of reservists, performing artists, and fee-basis government officials. (Form 2106 or 2106-EZ)
e. Health savings account deduction (Form 8889)
f. Moving expenses (Form 3903) are only allowed for military personnel who are assigned to a new duty location.
g. Deductible part of self-employment tax (Schedule SE)
h. Self-employed SEP, SIMPLE, and qualified plans
i. Self-employed health insurance deduction
j. Penalty on early withdrawal of savings
k. Student loan interest deduction
7. After determining the annual amount of allowable expenses for each individual, divide the number by 12 to get a monthly amount.
8. To determine an individual’s MAGI income, subtract the monthly amount of expenses from the monthly gross income.
· For a married couple, deduct expenses from the combined income of both individuals, even if an expense is only claimed by one individual.
9. To determine the countable income for each individual’s household size, combine the MAGI income for all individuals who are included in that individual’s household size whose income is required to be counted.
· Countable income may be different for each individual depending upon the individual’s household composition.
C. Reasonably Compatible Test
1. After calculating the countable income based on client statement and electronic data sources, determine if the amounts are reasonably compatible.
a. Deduct an amount equal to 5% of the 100% level of federal poverty level for the applicable household size from the income amounts determined before comparing the amount to the income standard.
b. Do not apply the 5% deduction to qualify an individual for a program with a lower income limit if they would qualify for a program with a higher income limit.
· The TAM and PCR programs do not qualify for the 5% income deduction,
Example 1: A household with deprived and dependent children applies for Medicaid for the whole family. The adults’ MAGI income is 4% over the income limit for PCR. We will not deduct the 5% from household income to qualify adults for the PCR program. The household income qualifies the adults for the Adult Expansion program.
Example 2: An individual meets the program criteria for TAM but is $2.00 over the income limit for the TAM program. We will not deduct the 5% from the individual’s income to qualify for TAM. We will determine their eligibility for the Adult Expansion program.
c. Income is reasonably compatible if both the client's statement of income and the income based on electronic data sources are above, or at or below the income standard for the MAGI coverage group for which the individual could qualify.
d. If income is reasonably compatible, do not request verification from the individual. Proceed with the eligibility determination.
2. If income is not reasonably compatible, request the needed verification of income (731).
a. If the income is not reasonably compatible for the MAGI-based coverage group with the lower income limit, but the income is reasonably compatible for a MAGI-based coverage group with a higher income limit, request verification of income from the individual.
· For example, the income is not reasonably compatible when looking at Child Medicaid, but is reasonably compatible for CHIP. Request income verification to decide if the child is Medicaid eligible.
· If the child is not Medicaid eligible based on the verified income, determine eligibility for CHIP.
b. Request verification of income before denying eligibility for Medicaid. If the verification is not received by the end of the verification period or the due date (whichever is longer), deny the Medicaid eligibility. For a child who could qualify for CHIP, do not open CHIP if the income verification is not received, because we cannot decide that the child is ineligible for Medicaid.
c. When verification is received, determine eligibility based on the amount of the verified income.