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.
Thank you I’ve been trying to explain to people these facts and telling them to consult with their accountant rather then aske a clerk at “programing” offices
Thanks for the informative article.
As you mentioned, most things that reduce your net paycheck number are helpful for eligibility. This includes 401k contributions and childcare FSA (if your employer provides and you use a Flexible Spending Arrangement (FSA) for dependent care expenses, income deposited into the account is not included in wages or MAGI.
Thank you for the well written article. Very clear and understandable.
To the author:
Can you please cite the legal sources from where you obtained the information for your article on how MAGI is calculated for purposes of eligibility for NJ Family Care. The following legal sources seem to articulate a more lenient calculation than you described. Particularly at issue is whether deductions of line 23-35 of the 1040 are added back to income (per your article), or whether they are deductible for eligibility purposes as well (per links below). Please clarify. Thank You
There appear to be different MAGI computations for various Federal credits.. Obviously use the 14 State computation for State purposes.
@Shaila consulting with an accountant doesn’t really help you get approved…. I’ve had a situation where the food stamp office required me to show them a utility bill to get the utility allowance when I pointed out to them that there is a sign hanging in their office which states a letter from the landlord suffices they attempted to brush it off saying that’s an old rule only for me to show them the sign had a date on it less then a month old to which they respond this is how we are told …. or the ChS office that requires a page from your tax return that doesn’t exist… the question is why does the aca go according to Magi and not the Agi someone who is self employed is not keeping any of the self employment tax money why are we counting that? It’s almost like Obama wanted to say look I’m helping the middle class with x income which is very deceiving as he’s counting alot of income which you don’t get to keep…
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Simple English would have been nice.
if everything would be simple English lawyers would be out of their job
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