When applying for medical coverage through the Marketplace, Medicaid or BadgerCare Plus, most applicants’ income is assessed using MAGI rules. Housing allowance payments may also count as income under certain restrictions.
ECFA’s Housing Allowance Estimate Worksheet can provide useful assistance, though this document only summarizes regulations rather than offering personalized tax or legal advice.
Housing Allowance Exclusion
The Housing Allowance Exclusion allows churches to circumvent income tax liabilities on parsonages provided or owned by churches as well as cash payments made directly to ministers who live there. Furthermore, personal expenses related to pastor’s home are exempted from federal income tax as well as state and local taxes; however these funds must be reported when filing a return with the IRS; there are specific rules related to this exclusion.
Pastor’s housing expenses must not exceed either their fair rental value of their home, or their designated housing allowance, to qualify as exclusionary expenditures from income. Fair rental value refers to the current market value as of January, typically determined through professional appraisal or real estate broker services; it should be obtained prior to allocating clergy member housing allowance.
Pastors should maintain detailed records of all expenses related to their home. This should include original receipts, cancelled checks and charge card statements as proof. Maintaining these records makes verifying annual housing allowance amounts much simpler; should an audit occur these records can help defend pastors against claims by the IRS that expenses exceeded what was allowed.
Notable aspects of housing allowance payments should include that, should an interim assignment extend past one year, it becomes the primary residence for tax purposes and all subsequent allowance amounts must reflect actual costs associated with that location.
If a church provides its pastors with housing or cash housing allowance, it must report this income on Form W-2 and deduct its amount as an itemized tax deduction; then include this deducted amount when calculating their self-employment taxes on Schedule SE.
Exclusion from Gross Income
Current Gross Income Exclusions involve housing allowance (sometimes known as parsonage allowance or rental allowance). This amount is provided by churches for pastors and other ordained employees to cover basic living expenses; federally it can be excluded from income taxes while reporting this as wages under self-employment tax laws.
Keeping meticulous records is crucial if your congregation pays you a housing allowance; this will allow you to avoid issues should the IRS ever question its tax-exempt status of any allowances. When estimating annual value of home, consult a real estate professional or appraiser outside your ministry; this ensures an appraisal based on fair market value rather than biased opinions.
Not unlike other wage earners, clergy typically do not include housing payments in their adjusted gross income (MAGI). This makes the tax exclusion an interesting one: nearly all wage earners use some portion of their income for purchasing or renting housing compared to pastors or other clergy who may utilize much higher percentages of their earnings for this purpose.
Politically speaking, tax exclusion makes perfect sense; however it creates some uncertainty for workers attempting to determine whether their health insurance plans are affordable under Obamacare marketplace. Exemption allows workers to avoid having to compare employer-provided coverage costs against individual market or public options but does not provide clarity as regards differences in after-tax costs of various coverage types that vary based on age and income levels.
As part of the current debate surrounding Obamacare, some have advocated ending its exemption as a means of increasing efficiency and cutting spending. Such an action might raise enough revenue without also increasing income taxes on people covered through employer-provided coverage; it might also obscure some important factors about how workers value insurance at different ages and income levels.
Exclusion from Income for BadgerCare Plus
BadgerCare Plus, Wisconsin’s version of Medicaid, provides healthcare to low income children, adults and families living in Wisconsin. The program operates as a hybrid system requiring some individuals to pay copays while others don’t; those who pay copays must use a specific network of health providers that allows the state to monitor their health more easily while making sure that the best resources available are being utilized by these patients. Eligibility for BadgerCare Plus is determined by the Wisconsin Department of Health Services based on federal poverty guidelines while eligibility determination by eligibility determination by Wisconsin DHS.
BadgerCare Plus eligible applicants and members must renew their benefits annually, providing information about their household, income and insurance coverage to the state. The rules for renewal have returned to what existed prior to public health emergency declaration.
BadgerCare Plus considers a household to be any group of individuals living together and sharing expenses, including spouse, fiance, partner and dependent children living there. When considering who lives within it, they consider who lives there in terms of relationship – this usually includes parents, grandparents, siblings spouses or any children under any age that might reside with them as close relatives; sometimes this also applies to siblings legally separated or divorced but living together nonetheless.
Under certain conditions, an individual may be eligible to deduct part of their gross income for housing costs. This only applies if they own their home and the church has designated an allowance amount as housing allowance or their furnished and utilitized fair rental value is lower than this allowance amount. Aside from housing expenses, non-deductible expenses include money spent on cleaning services, food delivery or domestic help services as well as loans taken out to purchase or improve primary residences which must all be counted as income.
Live-in caregivers provide homecare for elderly or disabled individuals living at home, who receive payments from family, friends or other sources; if these payments are regular and predictable they should be included as income; alternatively they could use a tax-sheltered account created specifically to receive this kind of support as this way the interest and appreciation earned will not count against their income thresholds.
Exclusion from Income for Medicaid
Medicaid program exclusions provide protection from exceeding eligibility limits, with this amount depending on which category an applicant applies for: pregnant women, children aged 1-18, adults between the ages of 19 and 65 and people with disabilities are all affected by different income and asset limitations and must spend down their assets accordingly. Each group requires different spending down amounts before qualifying.
First among these exclusions from income is the family home, with its value excluded from Medicaid eligibility calculations. Car values also cannot count towards eligibility calculations. Other sources of exclusions from income include personal property, household goods and appliances and money held in burial trusts.
To qualify for Medicaid, an individual must meet both income and asset criteria. Income limits depend on household size; they’re always significantly below the poverty line. Furthermore, certain Medicaid programs impose penalties for exceeding certain asset thresholds.
Medicaid places restrictions on how much income an employee can make from employment and has its own set of rules for how it counts unearned and investment income. Some of these rules can be restrictive enough to prevent people from accessing benefits they need; others lead to long delays during application processing, potentially depriving applicants from coverage they could need in health care coverage.
Several states have taken steps to adopt more flexible income counting guidelines than federal ones, known as MAGI rules (Manageable Average Gross Income). They use similar methodology as that employed by the Internal Revenue Service when determining taxable income while also permitting individuals to keep a greater portion of their earnings as income tax free.
MAGI rules do not benefit everyone equally. Many Medicaid beneficiaries who fail to report small changes in income during enrollment risk spending down assets or losing coverage as a result, making it much harder for low-income workers to remain eligible and contributing to high rates of disenrollment from the program when renewing annual enrollment forms. This additional burden has particular ramifications for black, Latino and American Indian/Alaska Native individuals as they are more likely to be denied coverage because of such strict rules.
