Change to Modified Adjusted Gross Income Calculations in 2018

There are some changes to the calculation of Modified Adjusted Gross Income (MAGI) as a result of the tax bill passed in December 2017. Though most changes take effect this year, they should not impact tax credit reconciliation for people who projected their 2018 income under the prior law rules.

Dependent Filing Requirement Raised

The most significant change raises the income at which a dependent must file a tax return. Fewer dependents will need to file, meaning more families can exclude a dependent’s earnings from their household income.

Starting this year, a single dependent under age 65 will be required to file if earned income is greater than $12,000, compared to $6,350 in 2017. A dependent also must file if unearned income exceeds $1,050 (unchanged by the new law), or if gross income is higher than a combination of earned and unearned income. This change is effective for 2018 and sunsets after 2025. The new amount is not loaded yet in HBX, so consumer assistance workers must make the adjustments manually before entering dependent income figures in the application. We anticipate making the adjustment prior to Open Enrollment, so please keep an eye on system updates so you’ll know when the HBX Corticon engine will take over the calculation.

Income and Deduction Changes

The new law takes alimony off the tax return altogether for newly divorced or separated couples. Previously, the spouse paying alimony would deduct those payments and the spouse receiving alimony would count them as income, both affecting MAGI. Starting with judgments (date of divorce or alimony determination) after Jan. 1, 2019, neither spouse will include alimony on the tax return. People whose divorce decrees were finalized prior to Jan. 1, 2019, can choose to adopt this new rule in a modification of their current agreement.

Moving expenses are no longer deductible, except by members of the Armed Forces.

Household Determination Unchanged

The rules about who can be claimed as a dependent don’t change, even though personal exemption deductions are eliminated. While taxpayers will no longer subtract a per-person amount from adjusted gross income on the tax return, dependents still will be determined according to the usual rules. Household size for Medicaid and marketplace eligibility will remain the same. (Note recent change in Maryland and in HBX that counts unborn child in household of all applicants.)

Exemption Eligibility Increased

Also note an additional non-MAGI change. Fewer people will have to pay the shared responsibility fee in 2018 (before it reduces to zero in 2019) because tax-filing will be triggered at a higher income, qualifying more people for an exemption. For example, a single person doesn’t need to file if income is less than $12,000 in 2018, compared to $10,400 in 2017.

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