When determining Modified Adjusted Gross Income, in addition to deducting business and self-employment expenses (see PM 08-03-01-b), allow the following income deductions:
- Pre-tax deductions to Gross Income, and
- Expenses that are considered as adjustments to gross income on form 1040.
MAGI income deductions must be verified to be allowed. If the expense is not verified, determine eligibility without allowing the expense.
There are different types of deductions that may be incurred over different timeframes. See WAG 08-03-03 for how to incorporate deductions that are incurred less often than monthly.
Deductions from income taken before taxes are deducted from the income. Common pre-tax deductions include deductions for health insurance premiums, contributions to 401(k) retirement plans, life insurance premiums, clergy housing allowance, and non-taxable per diem payments received for travel expenses.
Adjustments to Gross Income
These expenses are considered as income tax deductions and reported on form 1040. However, the person does NOT have to file a tax return to get the deductions.
Educators can deduct up to $250 of expenses paid in the taxable year. The maximum deduction is $500 for spouses who are both educators.
An eligible educator is a kindergarten through grade 12 teacher, instructor, counselor, principal, or school aide.
|Business expenses of Reservists, Performing Artists, and Fee-Basis Government Officials
||These expenses include:
- Certain business expenses of National Guard and reserve members who traveled more than 100 miles from home to perform services as a National Guard or reserve member.
- Performing arts-related expenses as a qualified performing artist.
- Business expenses of fee-basis state or local government officials.
|Health Savings Account (HSA) Deduction
A deduction for contributions made from a person's income to a qualified HSA during the year
See WAG 25-03-02 (2) for the allowable amounts.
||Costs of moving to start a business or take a new job. The new workplace must be at least 50 miles further from the person's old home than the old home from the workplace. For people without a former workplace, the new workplace must be at least 50 miles from the new home.
|Tax deductible part of self-employment tax
||A deduction for the employer-equivalent portion of self-employment tax.
|Self-employed SEP, SIMPLE and qualified plans
||A deduction for contributions to a qualified retirement plan for the self-employed and clergy members.
|Self-employed health insurance deduction
||A deduction for the amount paid a self-employed person paid for health insurance for him or herself, spouse and dependents.
|Penalty on early withdrawal of savings
||A deduction for penalties paid for early withdrawal of savings from certain financial accounts.
||A deduction for payments to or for a spouse or former spouse under a divorce or separation agreement. Payments to or for a spouse or former spouse under a divorce or separation agreement executed prior to 12/31/18 are allowable deductions. If the divorce or separation agreements was executed or modified after 12/31/18 the alimony payments are not deductible.
||Contributions made to a traditional IRA during the taxable year may be deducted. The person must have earnings in the year to qualify for the deduction. See WAG 25-03-02 (2).
|Student loan interest
||A person may take this deduction, limited to $2,500 in a tax year, if all of the following apply:
- The person paid interest in the taxable year on a qualified student loan,
- The person is not a tax filer who is married filing separately,
- The person's modified adjusted gross income is less than $80,000 if single, head of household or qualified widow(filer), or $160,000 if married filing jointly, and
- The person is not claimed as a dependent on someone else's tax return.
|Tuition and fees
A deduction limit of up to $4,000 per year for qualified tuition and fees a person pays for him or herself, spouse or dependent.
To qualify, the person's modified adjusted gross income cannot be more than $80,000 per year, or $160,000 if filing a joint return.
Tuition and Fees are no longer considered an allowable deduction as of 1/1/2018.
|Domestic production activities deduction
||A deduction of up to 9% of qualified production activity income from any of the following:
The DPAD has been repealed for tax years beginning after 2017.
- Construction of real property in the U.S.;
- Engineering or architectural services performed in the U.S. for construction of real property in the United States; and
- Lease, rental, license, sale, or exchange of personal property, computer software, sound recordings, and qualified films manufactured, produced or processed completely or mostly in the U.S.;
- Sale of electricity, natural gas or potable water produced in the United States.
MAGI 5% FPL Standard Disregard
A standard income disregard of 5% of the FPL applies for the following MAGI groups: FamilyCare Assist, Moms & Babies, All Kids Assist and ACA Adults. This disregard is built into the applicable group's income standards and requires no casework action.