One of the most frequent questions posed by Californians looking to enroll in a health insurance plan through Covered California is whether the system uses gross income or net income to determine eligibility and premium costs. To put it plainly: Covered California uses neither gross income nor net income. Instead, it relies on Modified Adjusted Gross Income (MAGI) as the basis for its calculations.
Official Guidelines and Documents
According to Covered California’s official guidelines, “Your Modified Adjusted Gross Income is your Adjusted Gross Income (found on your tax return) plus any tax-exempt Social Security, tax-exempt interest, and tax-exempt foreign income you have.”
This is further supported by federal regulations under the Affordable Care Act, which specifies MAGI as the income measurement for healthcare marketplaces. For more detail, you can consult the IRS guidelines on MAGI in the context of the Affordable Care Act, specifically in IRS Publication 974.
Why Not Gross or Net?
As explored in our previous section, gross and net income are simpler calculations that may not take into account various forms of income and certain deductions that can influence your ability to afford healthcare. MAGI, on the other hand, provides a more comprehensive and equitable measurement of your financial resources. This is why Covered California, in line with federal guidelines, opts for MAGI rather than gross or net income for determinations related to eligibility and financial assistance.
Why Does Covered California Use Modified Adjusted Gross Income (MAGI) and How Does It Differ from Gross and Net Income?
The Importance of MAGI in Covered California
When determining eligibility for premium tax credits and cost-sharing reductions, Covered California uses a specific financial metric known as Modified Adjusted Gross Income, or MAGI. Understanding MAGI is critical because it’s the yardstick by which financial assistance is measured and granted. But what exactly is MAGI, and how does it differ from gross and net income?
What is Gross Income?
Gross income is the total income you earn in a year before any deductions or taxes are taken out. This can include wages, salary, tips, bonuses, rents, interest income, and any other form of financial gain. For many people, especially those who don’t own businesses or have multiple sources of income, gross income can usually be found on one’s W-2 form or initial tax documents.
What is Net Income?
Net income, on the other hand, is what’s left after all deductions, taxes, and additional expenses have been subtracted from your gross income. In essence, it’s the amount of money that actually makes it into your bank account and is available for you to spend. For individual consumers, this often means the income that’s left after things like income tax, Social Security contributions, and Medicare contributions have been deducted.
The Role of Modified Adjusted Gross Income (MAGI)
MAGI starts with your Adjusted Gross Income (AGI), a figure found on your tax return. AGI includes not just employment income but also additional income streams such as social security benefits, alimony received, and business income, minus certain “above-the-line” adjustments like student loan interest, alimony paid, and contributions to certain retirement accounts.
The “Modified” part comes in when you add back specific deductions, such as:
- Non-taxable Social Security benefits
- Tax-exempt interest
- Foreign income that is excluded from U.S. taxes
By using MAGI, Covered California aims for a more comprehensive view of an individual’s financial status, which allows for a more equitable distribution of subsidies and assistance.
Why MAGI?
The use of MAGI as opposed to gross or net income helps create a level playing field, ensuring that financial evaluations are as equitable as possible. It takes into consideration various forms of income and adjusts for certain deductions, making it a more nuanced metric for determining eligibility for financial assistance.
FAQs
One of the most frequent questions posed by Californians looking to enroll in a health insurance plan through Covered California is whether the system uses gross income or net income to determine eligibility and premium costs. To put it plainly: Covered California uses neither gross income nor net income.
Does Medi-Cal look at gross or net income? ›
Keep in mind that these are countable income limits, which is your gross income minus certain deductions. Your gross income can be much higher than your countable income. For example, an individual with no unearned income can make $76,320 a year in gross income and still be eligible for this program.
How much can a family of 3 make to qualify for Covered California? ›
Household Income Ranges by Federal Poverty Level (2022)
| Household Size* | Less than 200% | 300% – 400% |
|---|
| 1 | $0 - $25,760 | $38,640 - $51,520 |
| 2 | $0 - $34,840 | $52,260 - $69,680 |
| 3 | $0 - $43,920 | $65,880 - $87,840 |
| 4 | $0 - $53,000 | $79,500 - $106,000 |
If your income ends up lower than anticipated, you'll get a refund when you file your taxes. That's right, any premium assistance you were eligible for but didn't receive will find its way back to you. Just make sure you file your taxes on time to snag those tax credits that are rightfully yours.
How to calculate self employment income for Covered California? ›
For the self employed, we're looking then at your net business income. This would be your gross business income for the calendar year minus your eligible business expenses.
Does Covered California go by gross or net income? ›
According to Covered California's official guidelines, “Your Modified Adjusted Gross Income is your Adjusted Gross Income (found on your tax return) plus any tax-exempt Social Security, tax-exempt interest, and tax-exempt foreign income you have.”
Do they look at gross or net income? ›
Gross income is your salary or wages before deductions like taxes and retirement plan contributions are taken out. Net income is what you're left with after those deductions. On a credit application, you'll use the gross figure.
Do I make too much money for Covered California? ›
Covered California income limits are a household income of up to 400% of the Federal Poverty Level (FPL). Households who make more than that do not qualify for financial assistance with their health insurance plans. How much is this in hard figures? The limits are based on both household income and household size.
What happens if I underestimate my income for Covered California? ›
Income Increases: If your actual earnings surpass your estimates, you may need to return a portion or all the subsidy you were granted. Income Decreases: On the flip side, a drop in income can make you eligible for further financial assistance.
Who is not eligible for Covered California? ›
Who is Eligible for Covered California? All U.S. citizens, U.S. nationals and noncitizens lawfully present in California may apply for health care through Covered California. Who is Not Eligible for Covered California? If you are not lawfully present in California, you are not eligible for a Covered California plan.
Income can be verified by providing various types of documents such as the acceptable list below. One of the most common proofs is a pay stub. If you submit a pay stub, make sure that it is current and within the last 45 days; otherwise, Covered California may not accept it.
Why did I get denied for Covered California? ›
Covered California stated that your application was incomplete. You do not have other health coverage (such as free Medi-Cal or employer-sponsored insurance) that prevents you from qualifying for insurance through Covered California. Covered California stated that you are not a California resident.
How do I adjust my income for Covered California? ›
To report changes, call Covered California at (800) 300-1506 or sign in to your online account. You can also find a Licensed Insurance Agent, Certified Enrollment Counselor or county eligibility worker who can provide free assistance in your area.
What is not counted as income? ›
Nontaxable income won't be taxed, whether or not you enter it on your tax return. The following items are deemed nontaxable by the IRS: Inheritances, gifts and bequests. Cash rebates on items you purchase from a retailer, manufacturer or dealer.
Does healthcare.gov want gross or net income? ›
To report expected income on your Marketplace health insurance application, you can start with your most recent year's adjusted gross income and update it based on income and household changes you expect for the coverage year.
What kind of money counts as income? ›
Taxable income includes wages, salaries, bonuses, and tips, as well as investment income and various types of unearned income.
How does Medi-Cal verify income? ›
Income can be verified by providing various types of documents such as the acceptable list below. One of the most common proofs is a pay stub. If you submit a pay stub, make sure that it is current and within the last 45 days; otherwise, Covered California may not accept it.
Does health insurance come out of gross or net income? ›
Many people wonder if they can deduct health insurance premiums, which is the cost of insurance paid from your paycheck, or just out-of-pocket medical costs. Medical insurance premiums are deducted from your pre-tax pay. If you're wondering if health insurance premiums can be deducted, the answer is no.
Does healthcare Gov ask for gross or net income? ›
To report expected income on your Marketplace health insurance application, you can start with your most recent year's adjusted gross income and update it based on income and household changes you expect for the coverage year.
Does Medicare look at gross or net income? ›
We use the most recent federal tax return the IRS provides to us. If you must pay higher premiums, we use a sliding scale to calculate the adjustments, based on your “modified adjusted gross income” (MAGI). Your MAGI is your total adjusted gross income and tax-exempt interest income.
