MinnesotaCare

3.3.3 Income Methodology

Income eligibility for MinnesotaCare is based on projected annual income (PAI). PAI is the Modified Adjusted Gross Income (MAGI) that a person expects to have for a calendar year. PAI includes the MAGI a person has already received for the year as well as the MAGI the person expects to receive for the remaining months of the year. PAI also includes temporary income the person receives or expects to receive within the entire calendar year. When a person is requesting coverage for a future calendar year, PAI consists of the MAGI a person expects to receive for that future year.

An applicant or enrollee may attest to a PAI that is different from his or her current income. When a person reports a change in PAI, current income and adjustments may also change There may be inconsistent information when the PAI a person reports conflicts with other information or documentation provided by the person or in the case file.

MAGI includes:

  • The types of income included in Federal taxable income, including losses, minus Federal income tax adjustments

  • Nontaxable foreign earned income and housing cost of citizens or residents of the United States living abroad

  • Nontaxable interest income

  • Nontaxable Social Security and tier one railroad retirement benefits

Refer to the MAGI Fact Sheet for a quick reference guide for MAGI.

Federal Taxable Income

Federal taxable income are the different types of income that appear in the Income section of the Internal Revenue Service (IRS) form 1040, IRS form 1040-A or IRS form 1040-EZ. Only the taxable portions of these types of income are included in the adjusted gross income. The types of losses that would be reported on income tax returns can offset income. See the appropriate IRS form instructions for examples of federal taxable income. The general types of taxable income include the following:

  • Wages, salary and tips

    • Payroll or pre-tax deductions for childcare, health insurance, retirement plans, transportation assistance and other employee benefits are not taxable and are not included in a person's adjusted gross income.

    • Medicaid waiver payments received by a person who provides Home and Community-Based Services (HCBS) waiver services, such as personal care services, habilitation services, and other services, to an eligible person living with them are not taxable and not included in a person's adjusted gross income. See Internal Revenue Bulletin #2014-4 more information.

      If the eligible person does not live with the person providing HCBS waiver services, the Medicaid waiver payments are taxable and are included in the person's adjusted gross income.

  • Interest

  • Dividends

  • Taxable refunds, credits or offsets of state and local income taxes

  • Alimony received (spousal maintenance) based on a divorce decree or separation agreement executed before January 1, 2019.

    • Alimony received based on a divorce decree or separation agreement dated on or after January 1, 2019, is not taxable income to the recipient. It does not need to be reported and is not countable income under the MAGI methodology.

    • If the divorce decree or separation agreement is modified on or after January 1, 2019, and the modification expressly provides that the alimony tax law changes apply, then the alimony received on or after the date of modification is not considered countable income under the MAGI methodology.

    • Applicants and enrollees must determine whether the alimony payments they receive are based on a divorce decree or separation agreement executed or modified on or after January 1, 2019, and report accordingly.

    • Verification of the date of a divorce decree or separation agreement, or a modification to these, is not required.

  • Business income or loss

  • Capital gains or losses

  • Other gains or losses

  • Individual retirement account (IRA) distributions

  • Pension and annuity payments

  • Income or loss from rental real estate, royalties, partnerships, S corporations, trusts, etc.

  • Farm income or loss

  • Unemployment compensation

  • Social Security benefits

  • Other income or loss

    Generally, money a person receives through a fundraising or donation event is considered a personal gift if the money was given directly or indirectly without the expectation of receiving anything in return. Personal gifts are not included in a person's adjusted gross income.

  • Net operating loss, including carry forward loss

Federal Income Tax Adjustments

The types of adjustments that would be listed in the Adjusted Gross Income section of the 1040 or 1040-A are subtracted from gross income to calculate the adjusted gross income. Only specific types of adjustments are allowed. See the appropriate IRS form instructions for specific information about the types of adjustments.

The types of tax adjustments include:

  • Educator expenses

  • Certain business expenses of reservists, performing artists and fee-basis government officials

  • Health savings account

  • Moving expenses

    • Through December 31, 2025, moving expenses are permitted only for households that include active duty members of the military who move because of a military order and a permanent change in station.

  • Deductible portion of self-employment tax

  • Self-employed Simplified Employee Pension (SEP), Savings Incentive Match Plan for Employees (SIMPLE) and qualified plans

  • Self-employed health insurance

  • Penalty on early withdrawal of savings

  • Alimony paid (spousal support) based on a divorce decree or separation agreement executed before January 1, 2019.

    • Alimony paid based on a divorce decree or separation agreement executed on or after January 1, 2019, is not an allowable adjustment to income. It should not be reported as an adjustment to income and is not permitted as an adjustment under the MAGI methodology. 

      • If the divorce decree or separation agreement is modified on or after January 1, 2019, and the modification expressly provides that the alimony tax law changes apply, then the alimony paid on and after the date of modification is not an allowable adjustment under the MAGI methodology. 
        • Applicants and enrollees must determine whether the alimony they pay is based on a divorce decree or separation agreement executed or modified before January 1, 2019, and report accordingly. 
          • Verification of the date of a divorce decree or separation agreement, or a modification to these, is not required.

  • IRA deduction

  • Student loan interest

Legal Citations

Code of Federal Regulations, title 26, section 1.36B-1

26 United States Code, section 36B(d)(2)(B)

Code of Federal Regulations, title 42, section 600.5

Code of Federal Regulations, title 42, section 600.330(b)

Code of Federal Regulations, title 42, section 435.603(e)

Minnesota Statues, section 256L.01

Published: June 1, 2021

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