Medicaid eligibility basics: income counting and household rules

I didn’t expect to spend a whole afternoon untangling Medicaid rules, but here we are. A coffee got cold while I tried to decode who counts in a “household,” whether my friend’s summer-job paycheck for her teen should be added, and why everyone keeps saying “MAGI” like it’s a club password. When the light finally went on for me, it wasn’t because I became a policy expert—it was because I learned to translate the rules into everyday situations. That’s what I’m writing down here: the plain-language version I wish I had at the start, with careful notes and links to the official pages I leaned on, so you can double-check anything for yourself.

The idea that simplified everything for me

Once I realized Medicaid financial eligibility mostly follows federal tax rules, things clicked. MAGI—short for Modified Adjusted Gross Income—isn’t a mystery formula; it starts with your adjusted gross income and (for Medicaid/Marketplace purposes) adds back specific items like non-taxable Social Security benefits, tax-exempt interest, and certain foreign income. That single concept explains why some money counts and some doesn’t. If it’s usually part of your taxable income, it probably counts. If it’s clearly non-taxable under the IRS (like Supplemental Security Income, or SSI), it generally doesn’t. For the official plain-English definition, I bookmarked the federal glossary and the “what to include as income” page so I could sanity-check myself as I went along (see the federal “what to include as income” page).

• High-value takeaway: MAGI is tax-based. If the IRS says it’s taxable, assume it’s in; if it’s specifically excluded (e.g., SSI), assume it’s out—then verify with an official source.
• Medicaid uses MAGI for most kids, pregnant people, parents/caretakers, and expansion adults; people eligible on the basis of disability or age (65+) often follow SSI-style rules instead (Medicaid.gov overview).
• There’s a small but mighty “5% FPL disregard” that can push someone who’s just over the line into eligibility. It applies only when it changes the outcome (CMS FAQ).

MAGI in everyday terms

Here’s how I keep the income rules straight without doing math gymnastics. I start with last year’s tax return or current pay stubs to estimate, then layer on the MAGI tweaks. The government’s own checklist was surprisingly readable and covered both “count this” and “don’t count that” in one place (HealthCare.gov: What to include):

• Commonly counted: wages (your federal taxable wages), net self-employment income, unemployment, most retirement/pension distributions, interest/dividends (including tax-exempt interest for MAGI), capital gains, rental net income, and Social Security benefits (retirement/SSDI—include the full amount before deductions).
• Commonly not counted: SSI (Supplemental Security Income), child support received, workers’ compensation, many VA disability payments, and gifts/loans. (If you’re unsure, I check the federal list first.)
• Special notes: Alimony from divorces finalized before 2019 counts; for divorces finalized on/after January 1, 2019, alimony is generally not taxable and doesn’t count. Lump-sum income (say, a one-time payout) is counted only in the month received under Medicaid MAGI rules (42 CFR §435.603).

Another sanity check I lean on: if a teen has a summer job but isn’t required to file a tax return, their income often doesn’t count toward the household income for that teen’s parent’s Medicaid eligibility. That’s not a loophole; it comes straight out of the household-income rules in federal regulation (42 CFR §435.603). Still, you’ll list everyone’s income on the application—the system automatically applies the filing-requirement logic. I like that the official page calls this out plainly (Who’s included in your household).

Household rules I wish someone had explained to me sooner

Household size is not “who lives under your roof” in the everyday sense—it’s tied to tax rules. That’s what tripped me up at first. The quick mental model that helped:

• If you expect to file taxes and aren’t anyone else’s dependent: Your household is you, your spouse (if married), and everyone you expect to claim as a tax dependent. This is the default starting point under the federal rule (§435.603(f)(1)).
• If you will be claimed as a tax dependent: Your household is generally the tax filer’s household (with some important exceptions for certain dependents and complex custody situations) (§435.603(f)(2)).
• If you neither file nor are claimed as a dependent: Your household is you, your spouse (if living with you), and your children under a state-elected age threshold (often up to 19; states may adopt a higher age for certain youths). For minors, parents and minor siblings in the home are included (§435.603(f)(3)).
• Pregnancy rule: When determining the pregnant person’s own eligibility, they count as themself plus the number of babies expected. For other household members, states have options on how to count the pregnant person (the regulation spells out the choices) (§435.603(b)).

All of this is why the application asks about tax filing status and who you’ll claim, not just who sleeps in which bedroom. The Marketplace “who to include” page translates this nicely for day-to-day decisions (see the federal guide).

Common what-ifs I walked through on a notepad

To keep myself from getting lost, I tested a handful of realistic scenarios. Here are the ones that clarified the rules for me the most:

• “My teen has a part-time job.” If your 17-year-old isn’t required to file a federal return, their income generally doesn’t count toward the household MAGI for your eligibility—even though you’ll list it on the form. The system knows to exclude it if there’s no filing requirement (What to include).
• “I’m getting SSI and my spouse is working.” SSI itself is not counted in MAGI. Your spouse’s wages would be. If you’re applying based on disability or age, you may be in a non-MAGI pathway that uses SSI-style rules (which can include asset limits). The Medicaid site explains when MAGI doesn’t apply (Eligibility policy).
• “I’m self-employed with irregular income.” Report your net income after business expenses and use the best estimate you can for the year. States may base eligibility on current monthly income or projected annual income, with reasonable ways to account for predictable changes (§435.603(h)).
• “I’m pregnant.” For your own eligibility, you count as yourself plus the expected number of babies. For other household members’ determinations, states can count you differently (the regulation gives multiple options). Either way, household size increases for your determination (§435.603(b)).
• “I’m just barely over the limit.” The 5% FPL disregard may bridge a tiny gap—but only if it changes the outcome. It isn’t a general discount; it’s applied when someone would otherwise miss eligibility by a hair (CMS FAQ).

A simple three-step way I sort the details

When I’m helping a friend sanity-check their situation (informally), I go in this order:

• Step 1 Notice your tax setup: Will you file? Will anyone claim you? Who do you expect to claim as a dependent? (This frames the household.) If in doubt, reference the federal “who to include” page to see how the Marketplace/Medicaid defines a household for these purposes (Household guide).
• Step 2 Compare your income list against the official include/exclude list: wages, unemployment, Social Security benefits and the rest on one side; SSI, child support, and workers’ comp on the other (What to include). Remember the MAGI add-backs: non-taxable Social Security and tax-exempt interest do count here.
• Step 3 Confirm edge cases with the regulation itself (lump sums, scholarships, American Indian/Alaska Native exclusions) and with the Medicaid overview for non-MAGI pathways (disability, age 65+) (42 CFR §435.603; Medicaid.gov).

Small habits that made this feel manageable

I’m not above sticky notes, and these are the ones that stuck around on my screen:

• Keep a one-page income snapshot. One row per household member: name, income type, monthly estimate, yearly estimate, and whether they’re required to file taxes. This made it easy to see which amounts actually count.
• Tag “uncertain” items early. If I wasn’t sure whether something counted (say, a stipend or a one-time payment), I marked it and checked the federal include/exclude list and, when needed, the CFR paragraph. Two links did most of the heavy lifting: What to include and §435.603.
• Re-estimate after known changes. New job? Fewer hours? Because states may use current monthly or projected annual income, updating mid-year matters (§435.603(h)).

Red and amber flags that tell me to slow down

There were moments I learned to hit pause and read twice:

• Mixed pathways in one household. If one person might qualify under non-MAGI (disability/age 65+) while others are MAGI-based, the rules diverge. The Medicaid site explicitly notes that some groups are exempt from MAGI and rely on SSI-style methods (Eligibility policy).
• Shared custody and non-traditional households. The “who counts” rules key off who will claim whom for taxes, with specific exceptions. When in doubt, I re-read the “who to include” list and the regulation’s exceptions (Household guide; §435.603(f)(2)-(3)).
• Lump sums and scholarships. Don’t spread a lump sum across the year; Medicaid MAGI counts it only in the month received. Qualified scholarships used for tuition are excluded (§435.603(e)).
• “Just over the line” situations. The 5% disregard is narrow and outcome-based. I remind myself it’s not a blanket deduction; it’s applied only when it flips an “ineligible” to “eligible” (CMS FAQ).

The mini-checklist I keep next to my keyboard

• Did I define the household using tax expectations (filer/dependents) or the non-filer rule, not just who lives together?
• Did I list income and mark each as counted vs not counted using the federal include/exclude page?
• Did I remember MAGI add-backs (non-taxable Social Security, tax-exempt interest)?
• Am I in a non-MAGI category (disability/65+), where SSI-style rules and possibly assets apply?
• Is the 5% FPL disregard relevant (i.e., would it change the outcome)?

What I’m keeping and what I’m letting go

I’m keeping three principles on a sticky note: (1) Household follows taxes; (2) Income follows MAGI; (3) Edge cases live in the CFR. I’m letting go of the idea that I need to memorize dollar limits from a random blog post; I’d rather check the official sources and my state’s application. The combination of the federal “who to include” and “what to include” pages plus the single CFR section on MAGI has been more than enough for 90% of questions in my circle. When something feels genuinely unusual (like trusts, long-term services and supports, or spend-down), I go straight to the Medicaid overview and, if needed, talk to a navigator in my state.

FAQ

1) Does SSI count as income for Medicaid MAGI?
Answer: No. SSI isn’t included in MAGI for these determinations, and the federal include/exclude list says not to add SSI when calculating your MAGI estimate (What to include). People who qualify based on disability/age may be in non-MAGI pathways that use SSI-style rules (Medicaid.gov).

2) Do Social Security retirement or SSDI benefits count?
Answer: Yes. For MAGI, you include the full amount of Social Security benefits (before deductions), even the non-taxable portion, when estimating household income (What to include).

3) How does pregnancy change household size?
Answer: For the pregnant person’s own eligibility, they count as themself plus the number of babies expected. For other members’ determinations, states have options on how to count the pregnant person, spelled out in the regulation (§435.603(b)).

4) My child has a small job. Do I count their income?
Answer: List it on the application, but if they’re not required to file a federal return, their income usually doesn’t count toward household MAGI for Medicaid. The application logic accounts for this (What to include).

5) What is the 5% FPL disregard and when does it apply?
Answer: It’s a small across-the-board disregard (5% of the Federal Poverty Level for your family size) that’s applied only if it changes the decision from ineligible to eligible under MAGI. It isn’t a general deduction you take all the time (CMS FAQ).

Sources & References

• 42 CFR §435.603 (MAGI rules)
• Medicaid.gov — Eligibility policy overview
• HealthCare.gov — What counts as income
• HealthCare.gov — Who’s in your household
• CMS FAQ — 5% FPL disregard

This blog is a personal journal and for general information only. It is not a substitute for professional medical advice, diagnosis, or treatment, and it does not create a doctor–patient relationship. Always seek the advice of a licensed clinician for questions about your health. If you may be experiencing an emergency, call your local emergency number immediately (e.g., 911 [US], 119).