MR #16.10: Income Thresholds for Tax Dependents & Children, and MAGI Clarifications

Helping Families. Supporting Communities. Empowering Individuals.

Illinois Department of Healthcare and Family ServicesIllinois Department of Human Services

07/05/16

Summary:

  • Under MAGI budgeting, the rule about whether to count the income of a child of another person in the EDG or a tax dependent is based on whether the person is expected to be required to file a tax return for the current tax year.
  • The income thresholds for when a tax dependent, or child of another person in their EDG, is expected to be required to file a tax return have increased. 
    • The monthly Earned Income threshold is increased to $525; and
    • the monthly unearned income threshold is increased to $87. 
  • The new amounts are programmed in IES and are used for any outstanding certifications for back months starting with January 2016. 
  • This release also includes the following MAGI income counting clarifications:
    • Certain Medicaid Waiver payments are exempt under MAGI budgeting.
    • Railroad Retirement Benefits are counted under MAGI budgeting.
    • Clarifies that if reported MAGI income deductions are not verified, staff should determine eligibility without allowing the expense.
    • Provides clarification about what 'alimony' is, and when IRA contributions can be allowed as income deductions.

  1. New Tax Filing Thresholds for Tax Dependents
  2. MAGI Income Counting Clarifications
  3. MANUAL REVISIONS

Under MAGI budgeting policy, there are special rules concerning whether to count the income of a child of another person in the EDG or a tax dependent. The rule about whether to count this income is based on IRS rules regarding whether the person is expected to be required to file a tax return for the current tax year. These amounts are subject to change.

New Tax Filing Thresholds for Tax Dependents

The earned income threshold for which a tax dependent would be required to file a tax return has increased from equal to or greater than $517 per month to greater than $525 per month. The taxable unearned income amount increased from greater than $83 per month to greater than $87 per month.

Since SSA income is generally not taxable, it is not considered when determining whether a person will be required to file a tax return.

  • If the person's taxable income is over the 'required to file' threshold, all their income is counted, including SSA income.
  • If their taxable income is under the threshold then their SSA income is *excluded as well.

*Note: SSA income is counted under MAGI budgeting in all other situations.

The 'Income of a Child or Tax Dependent' desk aid has been updated.

MAGI Income Counting Clarifications

Medicaid Waivers - Payments to individual care providers made under a state Medicaid Home and Community Based Services Waiver program are excluded from gross income for income tax purposes, and exempt under MAGI budgeting, when the payment is for nonmedical support services provided to an eligible individual living in the provider's home.

  • Example: Mary receives $300 per month under the MFTD waiver to provide some of the care for her 22 year old son, James, who she lives with. The worker enters the full $300 amount in the 'Total Non-Taxable Income Amount' field on the Employment - Pay Details screen in IES. The income is not counted for MAGI budgeting.

Railroad Retirement Benefits - Railroad Retirement benefits, including Tier 1, Tier 2 and any supplemental annuity benefits, are counted under MAGI budgeting. Although Tier 1 benefits are not taxable, they are considered the same as nontaxable SSA benefits and are counted.

MAGI Income Deductions - MAGI income deductions must be verified to be allowed. If the expense is not verified, determine eligibility without allowing the expense.

Alimony Defined - Alimony is a payment to or for a spouse or former spouse under a divorce or separation instrument.  The term "divorce or separation instrument" means:

  • A divorce decree or separate maintenance instrument related to that decree,
  • A written separation agreement, or
  • A decree or any type of court order requiring a spouse to make payments for the support or maintenance of the other spouse; this includes a temporary decree.

IRA Deductions - To qualify as a deductible expense, contributions must be made to a traditional IRA that meets IRS rules. Money that's intended for retirement and put into a savings account that is not identified as a traditional IRA is not deductible. Money contributed to a Roth IRA is not deductible. The client may provide a document from the bank to verify that the account is a traditional IRA.

MANUAL REVISIONS

[signed copy on file]

James T. Dimas

Secretary, Illinois Department of Human Services 

Felecia F. Norwood

Director, Illinois Department of Healthcare and Family Services