By D. Wilschanski & Co. CPAs. Under rules prior to passing of the Affordable Care Act (ACA), which became New Jersey law in 2015, certain types of income were included with respect to the maximum thresholds such as parental gifts and other untaxed income. This meant that the gifts and the untaxed items were added to the income which could rapidly disqualify an applicant from his own New Jersey Family Care coverage and the childrens’ coverage. We have seen cases where gifts from parents to buy a house were added back to the income of the month of receipt to deny benefits for that month.

After passage of the ACA the State is subject to Federal rules which recognize the modified adjusted gross income ( MAGI ) as the required benchmark of eligibility.

MAGI is derivable from the adjusted gross income or line 37 on the tax return. Add back student loan interest, passive losses, rental losses, IRA contributions, qualified tuition expenses, tuition deduction and one half of the self employment tax and you have the MAGI figure. Once you know eligible family size for the Program, as distinguished from size for tax purposes, you could go on to compute the maximum eligibility threshold for the family. Gone are the parental gifts and other non taxable items which came up in the past and which were used to make many destitute families ineligible.

Generally, any item reducing reportable income such as a profit sharing plan, salary deferral and investment options such as tax free bonds would reduce the MAGI figure and thereby increase eligibility.

The Program uses the last filed return, which will be routinely cross checked, to determine the figures comprising MAGI, so that the annual application relies critically on the last years filed return. It follows that understanding your tax position in relation to eligibility for New Jersey Family Care is essential. The applicant whose income is close to the eligibility levels should check with an accountant who knows the rules and understands the available options. Staff at the Program desks are unlikely to have expertise in these complex tax issues, so caveat emptor. In fact there are pending cases being litigated regarding eligibility denials and demands for reimbursement of prior program payments which revolve around themes of the correct income determinations under ACA. Some of the governments positions do not jive with the new rules under ACA. Further, the government will deny benefits in cases where an applicant has adjusted his income in order to maintain Program eligibility. It follows that compliance with the income levels may not be the only determinant and the ultimate eligibility decisions will be subject to the applicants specific situation. If, for example, your income is approaching an eligibility threshold and you take a two month cruise to Bermuda in order to maintain eligibility, you might lose both the added income and a bunch of benefits.

One income item which was not excludable under the old rules , but would appear to be so under the new rules is parsonage income. Parsonage income is not part of the MAGI, in that it is not income taxable. From a purely tax perspective, parsonage income may be costly in terms of the social security tax generated. The Institutions which can give parsonage save on the payroll taxes which are fully passed on to the recipient but with health costs being prohibitive, taking parsonage may be an added incentive. Note that parsonage, which can apply to both genders, is subject to various strict rules to comply with requirements, is easily disallowed and accordingly should be carefully treated.

Our new President has vowed to put an end to ACA and from day one has signed executive orders to that effect. However, one could be reasonably confident that the MAGI threshold, borrowing from the existing tax code and easily verifiable as opposed to the prior ad hoc non universal computations, will survive the changes and will continue to be with us for some time.

This article is lirefuah shelema for Yaakov Shmuel ben Ettel. Please include in your tefilos.