440-6 Whose Income Counts for MAGI Household?

Effective Date: November 1, 2021

Previous Policy (440-5 was previously found in section 450-3 until November 1, 2021)

To determine countable MAGI-based income for each individual, decide who is included in the individual's household. Then decide whose income must count for that individual's eligibility.

A. Whose Income to Count

1. Count the MAGI-based income of every individual included in the household.

a. Do not count income of a child or other relative who does not expect to be required to file a tax return.

b. Count siblings’ income to each other when they:

i. Do not live with their parents,

ii. Live together independently or with a non-parent caretaker relative, and

iii. Meet the age criteria found in 401-3.

2. Accept the client's statement about whether a dependent expects to be required to file a tax return unless the eligibility agency has information that contradicts the client's statement. Only request additional verification when it appears the dependent will have enough income to be required to file a tax return.

3. For questions about ownership of income, see 413-4. If the income is not a countable type of income under the MAGI-based methodology, ownership is not an issue. For example, child support payments do not count under MAGI-based methodology. It does not matter if it is paid to the custodial parent or to the child.

B. Income of a Tax Dependent

There are two different classes of dependents: Child and Other Relatives (which includes certain unrelated persons.) Instructions for completing a 1040 tax return explain who meets the criteria for the two classes of dependents (See IRS website). 401-3

Most of the time, the tax filer's dependents will not have a filing requirement. They will not usually “expect to be required” to file a tax return. In that case, the income of a dependent does not count.

In some cases, a tax dependent who is required to file a tax return may still meet the tax dependent criteria. See IRS 1040 Instructions for the income limits for a dependent to be required to file a tax return. [Table VII]

The tax filing income threshold for a dependent is different when the income is unearned (like interest income) or earned. The threshold is less if the only income is unearned. Refer to C. for tax dependents' filing limits.

1. Child -

Even if a child expects to be required to file a tax return, the child counts in the MAGI household of the tax filer. Count the MAGI-based income of a child for the MAGI households in which that child is included only if the child is expected to be required to file a tax return. See 401-3 for the definition of child.

2. Dependents who are not children.

a. If the Other Relative is required to file a tax return, they may not qualify as a tax dependent. See 401-3 for the definition of Other Relative. The income threshold to meet the criteria of Other Relative is less than the earned income filing requirement threshold.

b. Include the Other Relative’s income in the tax filer's household income if the individual still meets the Other Relative criteria, but expects to be required to file.

i. If the agency has information that suggests the tax filer cannot claim an individual as an Other Relative, do not count that individual in the MAGI household and do not count their income.

ii. If the agency questions whether an individual can claim the Other Relative, the tax filer may provide evidence to establish their claim. If the tax filer can establish a basis for claiming the person as a dependent, include the dependent in the MAGI household. Then decide if the dependent's income must be counted.

iii. The income threshold to claim the Other Relative changes each year. Do not count the dependent's Social Security income to decide if the individual meets the filing threshold (Table VII).

C. When a Dependent Must File a Tax Return

IRS rules set an income threshold for when a tax dependent must file a tax return. Some other rules may apply, too. In general, a tax dependent claimed by another tax filer must file a tax return if they have taxable income in excess of the IRS threshold (Table VII).

· Social Security Benefits - If a tax dependent's only source of income is Social Security benefits, the individual is not required to file a tax return. This is true even if the person receives more than the unearned income threshold. The individual would need to have other taxable unearned income or earned income in excess of the threshold to be required to file a tax return.

· For Medicaid, the Social Security income of a dependent is counted only when the dependent is expected to be required to file a tax return.