Getting MAGI Right: When Does Social Security Income Count?

Last week, we released a primer on the basics of MAGI – how rules for counting household size and income to determine eligibility for Medicaid and CHIP have been aligned with Marketplace subsidies. The move to MAGI has brought about a number of changes in Medicaid and CHIP, but to further complicate things, there are some differences that apply only to Medicaid and CHIP. Today, we’re going to drill down on one of the more confusing aspects of MAGI: when does Social Security income count.

Social Security income includes retirement, survivor benefits, and disability payments. For the most part, only taxable sources of income count in determining household MAGI-based income. However, all Social Security income of tax filers is counted, regardless of whether it is taxable or not. On the other hand, Social Security income is ONLY counted for tax dependents – those individuals claimed as a tax exemption on someone else’s tax return – if they are required to file taxes. Social Security disability (SSDI) is often confused with another type of income – Supplemental Security Income (SSI). SSI is not counted under any circumstances toward a household’s MAGI. So let’s start there.

  • Social Security Disability Income (SSDI) versus Supplemental Security Income (SSI). SSDI is paid from the Social Security Trust Fund to totally disabled individuals who have worked long enough and paid Social Security taxes. Dependent children may also receive SSDI if a parent receives it. On the other hand, SSI is not a Social Security benefit; it is a supplemental income program designed to help the elderly, the blind, or people with disabilities who have little or no income. Like TANF payments, SSI is always excluded from MAGI-based income. Like other sources of Social Security income, SSDI is included in MAGI-based income for tax filers. It only counts for children and tax dependents if they are required to file taxes, as discussed below.
  • Counting Social Security income of tax filers. All types of Social Security income, whether taxable or not, received by a tax filer counts toward household income for eligibility purposes for both Medicaid and Marketplace financial assistance. By including non-taxable Social Security income in MAGI income, some individuals who are not required to file taxes may be denied Medicaid for too much income. In order to qualify for Marketplace financial assistance in these circumstances, the individuals must attest that they will file taxes for the applicable coverage year. It does not matter that they have not previously filed.
  • Counting Social Security income of children and tax dependents. For children and tax dependents, Social Security income only counts toward the total household income if the individual is required to file a federal income tax return. For example, a child’s survivor benefits or SSDI, even if the check is made out to the parent or guardian, only count if the child is required to file taxes. In 2015, the tax-filing threshold for children is $6,300 in earned income or $1,000 in unearned income, and $3,950 for other tax dependents.

This rule is confusing because Social Security income is considered “unearned income,” but in most cases, it is not counted when determining if the child or tax dependent is required to file taxes. Under IRS rules, only taxable Social Security is used to determine if an individual meets the tax-filing threshold. A single individual has taxable Social Security income only if half of the Social Security income plus other income exceeds $25,000. Therefore, if a child or tax dependent’s only income is Social Security benefits, it is unlikely that the individual would be required to file a federal income tax return, and the Social Security benefits will not be included in the total household income. However, if the dependent is required to file income taxes (for example, due to earnings from a summer job), then all of the dependent’s income, including the non-taxable Social Security benefits, will be included in the total household income.

There is one exclusion to the rule: Social Security income is counted for individuals who are claimed as a tax dependent by someone other than a parent or a spouse, regardless of whether they are required to file taxes (See Medicaid/CHIP Exception #1). In these circumstances, all of the individual’s income, including all Social Security benefits, counts toward his eligibility regardless of whether he meets the tax-filing threshold.

Examples of these situations are included in the longer brief, and may be helpful in understanding how Social Security benefits are counted. Stay tuned for tomorrow’s blog when we feature other confusing aspects of MAGI. A special thanks to the Robert Wood Johnson Foundation for its support of “Getting MAGI Right: A Primer on the Differences that Apply to Medicaid and CHIP” and this blog series.

The Getting MAGI Right series:A Primer on Differences that Apply to Medicaid and CHIP
Differences in Medicaid and CHIP Add Complexity
Exceptions for Who Counts in the Household for Medicaid and CHIP
An Assisters Worksheet for Determining Household Size in Medicaid and CHIP
Changes to Income Counting Rules in Medicaid and CHIP
Current Monthly Income vs. Projected Annual Income
Tricia Brooks is a Research Professor at the Center for Children and Families (CCF), part of the McCourt School of Public Policy at Georgetown University.