COUNTABLE AND EXCLUDED INCOME 1. 2. MAGI Income Types

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COUNTABLE AND EXCLUDED INCOME 1. 2. MAGI Income Types

Transcript Of COUNTABLE AND EXCLUDED INCOME 1. 2. MAGI Income Types

Families and Children Manual Policy Manual Number: 010.020
COUNTABLE AND EXCLUDED INCOME

Section: Financial Eligibility Chapter: Countable and Excluded Income

Legal Authority: 26 USC 6409; 26 USC 36B(d)(2)(B); 42 CFR 435.603; 42 CFR 435.949; 42 CFR 435.952; Tenn. Comp. R. & Regs. 1200-13-20

1. Policy Statement

Income eligibility for certain TennCare Medicaid categories and CoverKids is determined using the Modified Adjusted Gross Income (MAGI) methodology. In general, countable income includes income types that are taxable under federal tax law and excluded income includes income types that are non– taxable.

2. MAGI Income Types

Countable income under the MAGI methodology is based on the taxable income types reported to the Internal Revenue Service (IRS) as part of an individual or household’s income tax return. In an effort to simplify income reporting under the MAGI methodology, the Centers for Medicare & Medicaid Services (CMS) and the IRS identified the most often reported income types. The following income types are listed on the federal application: Jobs, Self-Employment, Rental or Royalty Income, Farming or Fishing Income, Social Security Benefits, Unemployment Insurance, Retirement, Pension, Capital Gains, Alimony, Investment (Interest) Income and Other Income (e.g. canceled debts, court awards, jury duty pay, cash support, gambling, prizes or awards).

3. Countable Income

a. Job

i. Wages

Wages includes all compensation from employment, and the term is generally defined to mean gross wages. Gross wages after pre-tax deductions are taken out by an individual’s employer are countable. The pre-tax deductions may include funds for child care, health insurance or retirement plans that are not taxable.

An individual’s pay stub may list his “federal taxable wages”, which subtracts the pre-tax amounts from gross wages. If this amount is provided on a pay stub, the individual should report that number.

Wages are counted (considered available to the individual) at the earliest of the following:

1. When received or paid; 2. When credited to the individual’s account; or 3. When set aside for the individual’s use.

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Families and Children Manual Policy Manual Number: 010.020

Section: Financial Eligibility Chapter: Countable and Excluded Income

Deferred wage payment occurs when wages are paid at a time later than they normally would have been paid. If wage payments are deferred due to circumstances beyond the employee’s control, consider the payment earned income when it is actually available to him. If payments are deferred at the employee’s request, determine when the wages would normally have been paid and consider them earned income for that period.

ii. Bonus

Countable. A bonus is a one-time payment that an individual receives in addition to her normal job wage or salary.

iii. Commission

Countable. Income received by an individual for services performed. Commission income is often paid based on a percentage of a sale or a fixed amount per sale.

iv. Contractual

Countable. Income paid to an individual based on a contractual agreement. To calculate contractual income, average the full amount of income paid on a contractual basis over the number of months the contract covers.

v. Tips

Countable. Money and goods received for services performed by food servers, baggage handlers, hairdressers, and others. Tips go beyond the stated amount of the bill and are given voluntarily. All tip income is countable, even if it is not reported to the employer.

vi. Differential

Countable. Payment made to an individual by an employer for a period during which he is performing service in the uniformed services while on active duty for a period of more than 30 days. Payment represents all or a portion of the wages the individual would have received if he was performing services for the employer.

vii. Older Americans Act

Countable. Title V of the Older Americans Act of 1965 provides part-time jobs for unemployed low-income people age 55 and older who have poor employment prospects. This income type includes wages and salaries paid to individuals as a result of their participation in a program funded under Title V of the Older Americans Act of 1965 as earned income.

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Families and Children Manual Policy Manual Number: 010.020
viii. Sick/Disability Pay

Section: Financial Eligibility Chapter: Countable and Excluded Income

Countable. Income an employee receives during a temporary absence from work due to an injury, sickness or disability. Sick/Disability pay is considered part of an individual’s wages for tax purposes. Sick/Disability Pay received within the first 6 months of the individual being unable to work is earned income. Sick/Disability Pay received more than 6 months after the individual is unable to work is considered unearned income.

ix. In-Kind Wages

Countable. Non-cash compensation, including food or shelter, received by an individual for work performed in place of, or in addition to, wages, profit or payment in cash. The value of in-kind wages is determined by the current market value of the item minus the amount of the outstanding balance due on the item, if any.

x. In-Kind Not Food/Shelter

Countable. Clothing or other goods received by an individual for work performed in place of, or in addition to, wages, profit or payment in cash.

xi. Severance Pay

Countable. Severance pay is countable earned income in the month received.

xii. Census Wages

Countable. Income paid to an individual by the Census Bureau for temporary employment activities in connection with the full Census that occurs every 10 years.

b. Self-Employment

i. Net Earnings

Net earnings from self-employment are countable income when determining eligibility. Selfemployment is the act of engaging in a trade or business. A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit. Individuals may be contractors, franchise holders, owners, operators, partners, etc. An individual must meet all of the following criteria to be considered self-employed:

1. Earns income directly from the business or trade, not from wages or salary from an employer;
2. Responsible for the payment of their entire Social Security and federal withholding taxes;

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Families and Children Manual Policy Manual Number: 010.020

Section: Financial Eligibility Chapter: Countable and Excluded Income

3. Does not have an employee/employer relationship with another individual and the services performed cannot be controlled by an employer; and
4. Should file self-employment tax forms (Schedule F, C, C-EZ, SE, etc.).

ii. Allowable Deductions

Net income is the gross income from any trade or business minus allowable deductions for that trade or business. Allowable deductions include expenses paid to operate the business or participate in the trade, including:

1. Car and truck expenses; 2. Depreciation; 3. Employee wages and fringe benefits; 4. Property, liability or business interruption insurance; 5. Interest on business loans; 6. Legal and professional services; 7. Rent or lease of business property and utilities; 8. Commissions, taxes, licenses and fees; 9. Advertising; 10. Contract labor; and 11. Repairs and maintenance.

iii. Business Structures

There are different types of self-employment business structures. Some common structures include:

1. Sole Proprietorships: A self-employment business that is not incorporated and has one or two owners. A Limited Liability company (LLC) is not a sole proprietorship;
2. Independent Contractors: An individual who pays her own employment taxes and does not have an employee/employer relationship is considered self-employed, unless incorporated or an LLC; and
3. Sharecroppers: If a sharecropper pays the costs of doing business and receives a portion of the net income in exchange for her labor, she is considered self-employed, unless incorporated or an LLC.

If an individual is self-employed and has a partner or is a joint owner of a business, the individual’s self-employment net earnings will be based on her distributive share from the business.

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Families and Children Manual Policy Manual Number: 010.020
iv. Federal Income Tax Return Forms

Section: Financial Eligibility Chapter: Countable and Excluded Income

1. Net Earnings from Self-Employment (NESE)

Self-employed individuals report their NESE on the Schedule SE tax form. Other forms may be used to report income (Schedule C, Schedule F, etc.) but the amount listed on Schedule SE should be used to verify self-employment earnings whenever possible. The NESE is the gross income from any trade or business less allowable deductions for that trade or business. NESE also includes any profit or loss in partnership. For the purpose of determining eligibility, count the NESE on a taxable year basis and divide the total of these earnings equally among the months in the taxable year.

Verify net earnings from self-employment on Schedule SE. The amount of net earnings from self-employment that should be reported based on a Schedule SE may be found under: Section A, line 4 or Section B, line 4.c. If line 4 or 4.c. show a positive amount of less than $400, then line 3 is used even if the amount on line 3 is greater than $400. Schedule SE may not be available or usable when:

a. An individual has started a new business and was not self-employed in the prior tax year; or
b. An individual has applied for or is receiving Title II (Social Security) benefits.

2. Schedule C

Used to report profit or loss from a Sole Proprietor business (general). Net profit or loss is listed on the Schedule C.

3. Schedule F

Used to report income and expenses from a farm operation. Net profit or loss is listed on the Schedule F.

4. Business Records

When a federal income tax return is not available, or the individual has made changes, stopped or added to the business, business records may be used to determine net earnings. When business records are used, use the individual’s gross income and allow the same deductions that are allowed by the IRS.

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Families and Children Manual Policy Manual Number: 010.020
c. Rental or Royalty

Section: Financial Eligibility Chapter: Countable and Excluded Income

i. Rental or Lease

Rental income is the amount an individual receives for use of his property after all property expenses are subtracted. Net rental income is countable when determining eligibility.

1. Gross Rental Income: All rental income that an individual collects for the use of his property is included in gross rental income.

2. Rental Expenses: Rental expenses that may be deducted from gross rental income include:

a. Pre-rental expenses (expenses related to managing, conserving and maintaining rental property from the time property is available to rent);
b. Advertising; c. Cleaning and maintenance; d. Utilities; e. Fire and liability insurance; f. Taxes; g. Interest; h. Commissions for the collection of rent; i. Ordinary and necessary travel and transportation; and j. Legal and other professional fees.

3. Other considerations: If an individual only rents part of his property, expenses must be divided between the part of the property that is used for rental purposes and the part of the property that is used for personal purposes. This also applies if an individual has any personal use of a dwelling unit, such as a vacation home, which he rents.

4. Counting Rental Income:

a. Income Received on a Regular Basis.

If an individual has a federal tax return available to verify the earnings from last year and the rental situation has not changed, prorate the reported annual profit over 12 months. Count the result as self-employment income, taking into account any changes for the prorated period. If this is the case, consider the individual selfemployed. Rental income should be considered unearned income if the individual is not self-employed.

If the individual does not have a federal tax return available from the previous year, determine the monthly income based on the rental/lease agreement in effect and any expenses the individual has paid or expects to pay in that month.

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Families and Children Manual Policy Manual Number: 010.020

Section: Financial Eligibility Chapter: Countable and Excluded Income

b. Income Received Annually or Infrequently.

If rental income is received on an annual or infrequent basis, prorate the annual amount including the anticipated changes over 12 months and count the monthly income as self-employment income.

5. Verification: If verification is required for rental income, request at least one of the following documents:

a. A copy of the rental or lease agreement in effect during the period under consideration;
b. A copy of the receipt the individual prepared upon receiving rental income; or c. A copy of the previous year’s federal income tax return.

ii. Royalties/Honoraria

Countable. Royalty income includes any payments an individual receives from a patent, copyright or any other natural resource owned by the individual.

Royalties are countable unearned income when the individual receives payment based on the use of a natural resource for which he owns the usage rights or the individual is not selfemployed.

d. Farming/Fishing

Farming or fishing income may be considered self-employment income but should only be counted once.

i. Farming Income

Farming income is countable. Farming income is income received when an individual is in the business of farming if she cultivates, operates or manages a farm for profit, either as owner or tenant. A farm can include livestock, dairy, poultry, fish or fruit. It can also include plantations, ranches, ranges and orchards.

ii. Fishing Income

Fishing income is countable. Fishing income includes amounts an individual receives from catching, taking, harvesting, cultivating or farming fish, shellfish, crustacean, sponges, seaweeds or other aquatic forms of animal or vegetable life, as well as money from patronage dividends and fuel tax credits and refunds.

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Families and Children Manual Policy Manual Number: 010.020
iii. Counting Farming or Fishing Income

Section: Financial Eligibility Chapter: Countable and Excluded Income

1. Income Received on a Regular Basis

If an individual has a federal tax return available to verify the earnings from last year and the business model remains the same, prorate the reported annual profit over 12 months. Count the result as earned income, taking into account any changes for the prorated period.

If the individual does not have a federal tax return available from the previous year, determine the monthly income received and any expenses the individual has paid or expects to pay in that month.

2. Income Received Annually or Infrequently

If farming or fishing income is received on an annual or infrequent basis, prorate the annual amount with anticipated changes over 12 months and count the monthly income as earned income.

iv. Verification

If verification is required for farming or fishing income, request at least one of the following documents:

1. A copy of an agreement executed by the owner and the individual working the farm (the individual could be either the owner or the tenant);
2. A copy of the most recent profit or loss statement; or 3. A copy of the previous year’s federal income tax return.

e. Social Security Benefits

Income received from Social Security disability, retirement or survivor’s benefits each month is countable for individuals required to file taxes. Social Security is also countable for individuals when income other than Social Security is over the tax filing threshold. The individual must provide the amount of benefit prior to any deductions, such as Medicare premiums, income tax withholding, overpayments, child support or alimony.

Countable Social Security income types include:

i. Social Security Disability Benefit (SSDI); and ii. Social Security Survivor or Retirement.

Note: This is not Supplemental Security Income (SSI). SSI is not countable income.

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Families and Children Manual Policy Manual Number: 010.020

Section: Financial Eligibility Chapter: Countable and Excluded Income

Income received from Social Security each month is not counted for tax dependents who are not required to file taxes. Social Security income is also not counted for children included in a natural or biological, adopted or stepparent’s household when the child’s income other than Social Security is under the tax filing threshold.

f. Railroad Retirement

Railroad Retirement Board benefits are paid in lieu of Social Security Retirement, Auxiliary or Disability to an individual based on earnings in the railroad industry. Railroad retirement benefits are countable unearned income in the month of receipt.

g. Unemployment Insurance

Count the full value of unemployment compensation benefits as available unearned income in the month of receipt. Unemployment compensation includes any amount received under an unemployment compensation law of the United States or a state.

If verification is required, verify the amount of unemployment benefits received with one of the following:

i. Documentary evidence from the Tennessee Department of Labor and Workforce Development;
ii. Access through data matches available through the Department of Labor – Unearned Income data source; or
iii. Documentary evidence from the state of issuance showing unemployment benefits are from another state.

h. Retirement

Payments an individual receives from a retirement account may be countable depending on the type of account, how much was contributed to the account, and whether the amount contributed was already taxed.

For treatment of certain types of retirement accounts, see sections 3.n.vii and 3.m. in this policy.

i. Pension

A pension is generally a series of definitely determinable payments made to an individual after retiring from active employment. Pension payments are made regularly and are based on such factors as years of service and prior compensation. Pension payments are generally made to an individual after retiring from active employment.

Pension income may be countable depending on the type of pension account, how much was contributed to the pension account, and whether the amount contributed was already taxed.

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Families and Children Manual Policy Manual Number: 010.020

Section: Financial Eligibility Chapter: Countable and Excluded Income

The amount of distributions received from a pension account should be provided on the application, even if the individual is not retired.

j. Annuities

An annuity is a type of trust with periodic payments that are generated by a bank or insurance company from funds deposited by the individual either in a lump sum or installments to establish a source of income for a future period. Annuity income is subject to the same treatment as pension income for the MAGI categories.

The amount of distributions received from an annuity account should be provided on the application, even if the individual is not retired.

k. Capital Gains

Countable. A capital gain is income an individual receives when a capital asset is sold and an individual makes a profit. Capital assets include a home, household furnishings, and stocks and bonds held in a personal account. When a capital asset is sold, the difference between the amount paid for the asset and the amount it is sold for is a capital gain or capital loss.

l. Alimony

Alimony received is money paid to an individual from a spouse that the individual no longer lives with, or a former spouse, if part of a divorce agreement, separation agreement or court order. Alimony is countable income if the separation, divorce agreement, or court order was finalized on or before December 31, 2018. Alimony received as the result of separation, divorce agreement, or court order that was finalized on or after January 1, 2019 is excluded. Payments designated in the agreement or ordered as child support or as a non-taxable property settlement are not alimony.

m. Interest Income

Countable. Dividends and interest are returns on capital investments such as stocks, bonds, and savings accounts, including accrued interest on loans made by the individual.

Count income received on a monthly basis in the month the individual receives it, or the month it is available for his use. Convert interest payments received on other than a monthly basis to a monthly amount by prorating the payment over the accrued period.

Types of Interest Income:

i. Stocks and Bonds: Income that an individual receives from stocks, bonds or mutual funds that he owns are countable.
ii. Certificate of Deposit: The accrued interest, based on the individual’s percentage of ownership, when the certificate of deposit has reached maturity is countable.

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