WAG 08-03-03: MAGI Income Deductions

PM 08-03-03

Adjustments to Gross Income

Deductions With Annual Caps

The following allowable tax deductions have an annual cap:

  • Educator expenses ($Revised Text.300 or single person; $Revised Text.600 for two)
  • Student loan interest ($2,500)
  • Tuition and fees ($4,000).Deleted Text.

Although IES will not allow an amount that is greater than the annual cap to be entered as a monthly deduction, IES does not track annual caps for MAGI income deductions. Workers must ensure that deductions that exceed the annual caps are not entered.

Example 1: A teacher's aide receives ACA Adult benefits and reports $50 per month in educator expenses from January through June. The worker enters a monthly deduction of $50 and sets a control to stop allowing the deduction after Revised Text.June, when the cap of $Revised Text.300 will have been reached. The expense is not allowed for the remaining months in the calendar year.

Example 2: A teacher applies for FamilyCare in September and reports that she paid $300 in educator expenses on September 1st. The worker enters the maximum deduction of $Revised Text.300 for September only. The expense is not allowed for the remaining months in the calendar year.

Student Loan Interest

Only the interest amount is deductible. Since the interest amount decreases slightly with each payment on the principal, determine the average monthly interest payment by dividing what the person is expected to pay in interest annually by 12. Document how the average was determined. For verification, use any document that confirms that the client is paying a student loan and identifies the interest amount separately from the principal, such as the loan payment book or other document from the lender. 

Tuition and Fees

For purposes of the tuition and fees deduction, qualified education expenses are tuition and expenses required for enrollment or attendance at an eligible educational institution.

An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education. It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions.

Deleted Text.

Alimony Paid

For MAGI, alimony paid must be entered under the Miscellaneous Expense screen in the IES Worker Portal (for non-MAGI, enter alimony paid on Support Expenses screen).

Note: 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. It does not include voluntary payments that are not made 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.

Pre-tax Deductions and Tax Exempt Income

When pay verification shows a taxable income amount that is different than the "Gross Pay Period Amount", enter the taxable income amount in the "Total Taxable Income Amount" field in the IES Pay Details screen.

Example 3: Ms. A's pay stub shows gross income of $500 and taxable wages of $475 after deducting the tax exempt amount of $25 that was for group insurance. The worker enters $475 in the "Total Taxable Income Amount" field. IES uses this amount for MAGI budgeting.

When the verification does not identify a taxable income amount but does identify a tax exempt amount that is included in the gross pay, enter the tax exempt amount in the 'Total Non-Taxable Income Amount' field.

Example 4: Reverend Smith's pay stub shows total gross income of $2,000 which includes a housing allowance of $750. The full amount of his housing allowance is used to pay rent and heating costs, and is therefore tax exempt earned income (see PM 08-03-01). The worker enters $750 in the "Total Non-Taxable Income Amount" field.

Note: Staff cannot enter an amount in the 'Total Taxable Income Amount' field if they've already entered the pre-tax deduction amount in the 'Total Non-Taxable Income Amount' field. They can only enter one or the other.