February 4, 2015
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.
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. Tricia Brooks is a Research Professor at the Georgetown University McCourt School of Public Policy’s Center for Children and Families. How much of your Social Security income is taxable?between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits. more than $34,000, up to 85 percent of your benefits may be taxable.
Is Social Security earned or unearned income?Unearned income includes all income that a person doesn't earn. This includes Social Security benefits, workers' compensation, certain veterans' compensation or pension payments, unemployment, pensions, support and maintenance in kind, annuities, rent, and other income that isn't earned.
Are Social Security recipients eligible for Earned income tax Credit?Yes, if you meet the qualifying rules of the EITC. Receiving Social Security or SSI doesn't affect your eligibility for the EITC.
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