Overview of How Income is Calculated with Respect to Medicaid:
Available income of a Medicaid (“MA”) applicant/recipient will be determined by New York State as follows:
While a federal program, Medicaid is jointly administered and funded by the federal government and the states which have been provided quite a bit of discretion in what choices they have been able to make when structuring their programs, even choices which impact eligibility.
Medicaid eligibility is based on a potential recipient’s modified adjusted gross income, or “MAGI”. MAGI takes into account all of an individual recipients earned and unearned income that is received during a given month. Countable income includes: (1) taxable wages/salary, (2) unemployment benefits, (3) alimony, (4) retirement benefits, (5) rental and royalty income, (6) investment income, such as interest and dividends, as well as (7) net capital gains [profit after subtracting capital loses]. In determining the amount of earned and unearned income for an individual, allowable business and other expenses will be deducted prior to reaching a final number. Income deemed available from legally responsible relatives will be also be added. Furthermore, income allocated to dependent family members will be deducted. The amount remaining after taking all the aforementioned into account, will be considered the applicant’s/recipient’s available income, aka MAGI. See, 42 C.F.R. § 435.603(e)(2) and (3).
Nontaxable income that is not included/countable include: Supplemental Security Income (SSI); Child support received; Veterans benefits; Worker’s compensation payments; Proceeds from life insurance, accident insurance, or health insurance; Federal tax credits and Federal income tax refunds; Gifts and Loans; and Inheritances. See, 26 U.S.C. 36B(d)(2)(B); 42 CFR 435.603(e) and 435.603(d)(3)
Types of Income:
As briefly stated above, Medicaid takes into account all of an applicant’s/recipient earned and unearned income. In terms of Medicaid, income means any payment from any source. It includes payments of money, goods, or services. It also includes payments made on both a one-time basis and on a recurring basis. Income received by an MA applicant/recipient is counted in the month in which it is received when determining MA eligibility. Commissions, bonuses or other amounts paid on the basis of superior performances, sales made, or goals accomplished are considered earned income. SSL Sect. 366.2(a). Additionally, in-kind income will also be counted, and is defined as income received in goods or services rather than in money. In-kind income can be considered earned or unearned, depending on the circumstances.
Earned Income:
Earned income is income received as a result of working. Earned income includes, but is not limited to, wages, salaries, tips, commissions, bonuses and income from self-employment or a small business. Any income gained from self-employment or small business ownership is considered earned income. Furthermore, income from self-employment or from a small business owned and operated by the person, will also be counted towards income levels, after the requisite allowable business expenses are deducted. Additionally, earned income can include lump sum payments (payments that are deferred or delayed payments). They include, but are not limited to benefit awards, bonuses, year-end profit sharing, severance pay, and retroactive pay increases. Lump sum payments as a result of employment, such as bonuses, retroactive pay increases and severance pay are considered earned income. Lump sum payments such as benefit awards from railroad retirement or Social Security are unearned income. Regardless of the type of income the lump sum payments fall under, countable lump sum payments are considered income in the month received.
Unearned Income:
In contrast, unearned income is income that is not received as compensation for work performed/ income which is paid because of a legal or moral obligation rather than for current services performed. Unearned income includes, but is not limited to, pensions, benefits, dividends, interest, insurance compensation, and capital gains.
Dividends and interest are returns on capital investments such as stocks, bonds, or savings accounts. Income from dividends and interest is included with all other sources of income in the eligibility determination process. Dividends and interest often vary from month to month depending on deposits, withdrawals, or company profits. Since dividends and interest credited to an individual account are generally not reflected until the end of the quarter, local districts project the amount of monthly dividends or interest based on the most current information available. If dividends or interest are credited/paid quarterly, one third of the quarterly interest or dividend is counted as income each month. Interest or dividends credited on other than a monthly or quarterly basis generally are annualized and divided by twelve to determine a monthly amount.
Capital gains on property (property is considered stocks and/or real estate) are an increase in the value of the resource, less any capital losses. A capital gain distribution outside of a trust is considered unearned income in the month received (a capital gain distribution within a trust is considered a part of the trust principal, unless specified otherwise in the trust). Further, taxes or transaction fees are not deducted in determining the value of capital gains.
With respect to retirement funds, these are annuities or work-related plans for providing income when employment ends, such as pensions, disability, or other retirement plans administered by an employer or union. Other examples are funds held in an individual retirement account (IRA) and plans for self-employed individuals (e.g., Keogh plans). Also, depending on the requirements established by the employer, some profit sharing plans may qualify as retirement funds. Medicaid applicants who are eligible for periodic retirement benefits must apply for those benefits to be eligible for Medicaid. Periodic retirement benefits are payments made to an individual at some regular interval (e.g., monthly, quarterly, annually), which result from entitlement under a retirement fund.
With respect to eligibility, an individual is eligible for periodic payments if he/she is authorized to receive distributions on a regularly scheduled basis without having a penalty assessed. An individual is not entitled to periodic payments if he/she is not permitted to take regularly scheduled withdrawals penalty free. Ordinary taxes are not considered a penalty. Once periodic payments are received, the periodic payments are unearned income, and the fund is not a countable resource.
In-Kind Income:
In-kind income is received in goods or services rather than in cash. It can either be earned or unearned. The value of goods and services is considered in determining eligibility for Medicaid only when they are provided by a legally responsible relative living outside the household or in return for services rendered. In-kind income received from anyone other than a legally responsible relative is considered available income only if it is earned income. Gifts and one-time contributions are not considered available income, regardless of the source; however, they can be counted against the resource standard, if applicable. In-kind income might include free lodging, meals, groceries or farm produce. In-kind income may be received by itself or together with income in cash as in the case of certain employed persons (e.g., dishwasher who receives wages and meals in compensation for his/her services).
The value of in-kind income will be determined based on the current market value of the goods or services received. The current market value is the amount that would be received if the goods or services were sold on the open market in the applicant’s/recipient’s local area. However, the value of housing provided as in-kind income will be the current market value of the housing or the social services district’s maximum shelter allowance, whichever is less.
What Can be Deducted?
Income:
Deductions and adjustments can and should be incorporated into adjusted gross income, as described on page 1 of IRS form 1040. In determining an applicant’s final adjusted income, deductions must be accounted for prior to said determination. Deductions allowed are: (1) Alimony paid to someone else; (2) Student loan interest paid; (3) Certain educator expenses; (4) Certain moving expenses related to a job changes; (5) Most contributions to individual retirement arrangements (IRAs); (6) Penalties on the early withdrawal of savings; (7) Certain business expenses of performing artists, reservists and fee-basis government officials; (8) Certain tuition and fees; (9) Health savings account contributions; (10) Certain self-employment business expenses not included in net income; and (11) Net operating loss. The net operating loss may be deducted from future years income. If the household MAGI would be less than zero, once deductions are incorporated, the income amount used to determine financial eligibility for Medicaid would be $0. See, IRS form 1040 and applicable instructions/guidelines; 18 NYCRR § 360–4.3.
Businesses and Rental Property:
The following allowable business expenses may generally be deducted: (1) rental of quarters and equipment; (2) salaries and fringe benefits of employees; (3) cost of goods for resale; (4) business taxes, licenses and permits; (5) cost of tools, supplies and raw materials; (6) insurance for the business; (7) lights, heat, water, sewage and telephone charges; (8) advertising and travel; (9) taxes and carrying charges on any property used in the business (other than payments on the principal of a mortgage); (10) for aged, certified blind, or certified disabled applicants/recipients, depreciation costs for buildings, equipment and materials necessary for and directly related to the operation of the business; and (11) any other expense necessary for and directly related to the operation of the business. See, 18 NYCRR § 360–4
With respect to rental property-based income, the income amount that is determined after allowable business expenses are deducted is considered available income of the applicant. For persons under 21 years of age, and pregnant women, such income will be considered earned income. For all others, such income will be considered unearned income. The following business expenses are deductible solely with respect to rental income-based properties: (1) property, school, water and sewer taxes; (2) the cost of utilities if they are included in the rent; (3) interest payments on mortgages for the property (but not payments on the principal of the mortgage); (4) the cost of essential repairs on the property (but not the cost of improvements to the property); (5) wages paid to employees for maintaining the property; and (6) any other expenses necessary for the maintenance of the property. Conversely, examples of non-deductible expenses include, but are not limited to: (1) Payments on the principal of mortgages; (2) Improvements to the property (i.e., an expense for an addition or increase in the value of the property); (3) Any other expenses which are not directly related to maintaining the property. Further, depreciation or depletion of property is not a deductible expense from rental income. See, 18 NYCRR § 360–4.3.
Various methodologies may be used to incorporate different types of deductions into current monthly adjusted gross income figures:
Deduction Type:
Example:
Permissible Methods
Consistent Monthly Deduction
Alimony paid; Student loan interest
Deduct the monthly expense from the current monthly income
Lump Sum Deduction
Certain educator expenses; Certain moving expenses
Deduct the full amount of the expense from the current monthly income in the month in which the expense was incurred; OR, Divide the total expense by 12 and deduct 1/12 from current monthly income
Annualized Deduction
Net operating loss carryover; Deductible part of self-employment tax
Divide the total projected expense by 12 and deduct 1/12 from current monthly income
