DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, Maryland   21244-1850 
 
 
 
SHO # 19-003 
 
Re: Changes to Modified Adjusted Gross 
Income (MAGI)-based Income 
Methodologies 
 
August 22, 2019 
 
Dear State Health Official:  
 
The purpose of this letter is to provide guidance to explain several legislative changes to the 
modified adjusted gross income (MAGI)-based methodologies used for determining Medicaid 
and CHIP eligibility.  These changes stem from the following pieces of legislation: the Tax Cuts 
and Jobs Act (Pub. L. No. 115-97, TCJA), enacted on December 22, 2017; the Bipartisan 
Budget Act of 2018 (Pub. L. No. 115-123, BBA of 2018), enacted on February 9, 2018; and 
the Helping Ensure Access for Little Ones, Toddlers, and Hopeful Youth by Keeping Insurance 
Delivery Stable Act (Pub. L. No. 115-120, HEALTHY KIDS Act), enacted on January 22, 
2018.  This guidance provides states with information on how to implement these legislative 
requirements, consistent with titles XIX and XXI of the Social Security Act (Act), for 
individuals whose financial eligibility is determined using MAGI-based methodologies.  
 
Background  
 
Section 1902(e)(14) of the Act requires that state Medicaid agencies generally use modified 
adjusted gross income and household income, as defined at section 36B(d)(2) of the Internal 
Revenue Code of 1986 (the IRC) to determine Medicaid eligibility.  Section 2107(e)(1)(H) of the 
Act requires that MAGI and household income also be used to determine eligibility for the 
Childrens Health Insurance Program (CHIP).  For purposes of Medicaid and CHIP eligibility, 
we refer to these definitions collectively as MAGI-based methodologies.  MAGI-based 
methodologies for Medicaid and CHIP are implemented in the regulations at 42 CFR 435.603 
and 457.315, respectively.1 
 
In general, the calculation of MAGI-based income includes all taxable earned and unearned 
income minus certain expenses such as student loan interest or IRA contributions that are 
deductible in determining an individuals adjusted gross income (AGI) for federal income tax 
purposes.  Three items must be added to adjusted gross income to determine an individuals 
MAGI (i.e., modified AGI): non-taxable foreign earned income, tax-free interest, and non-
taxable Social Security benefits.  There are a few discrete ways in which MAGI-based 
                                                           
1 Certain individuals are exempt from application of MAGI-based financial methodologies.  Generally, these include 
individuals whose eligibility is being determined on the basis of being age 65 or older, living with a disability or 
blindness or needing long-term services and supports; and individuals for whom the state does not apply an income 
test.  A more detailed description of individuals for whom MAGI-based methodologies do not apply can be found in 
regulations at 42 CFR 435.603(j).  Page 2  State Health Official 
 
methodologies used for Medicaid and CHIP differ from the definition of MAGI and household 
income in the IRC.  For example, MAGI-based methodologies for treatment of irregular income 
received as a lump sum is different than the treatment of lump sum income under section 36B of 
the IRC.  These differences are set forth in regulations at 42 CFR 435.603(e). 
 
Identifying the members of an individuals household is important to determine the individuals 
total household income and family size.  Under 42 CFR 435.603(f), for individuals intending to 
file a tax return as well as the individuals they claim as tax dependents, the MAGI-based 
household generally consists of the tax filer and his or her tax dependents.  For individuals who 
are not tax filers or tax dependents, non-filer rules set forth in 42 CFR 435.603(f)(3) are used 
to determine the MAGI-based household.  Under the non-filer rules, an individuals household 
generally consists of the family members, if living with the individual: the individual; the 
individuals spouse, if married; the individuals children (including step children); and, if the 
individual is a child, his/her parent(s) and sibling(s).  The non-filer rules also are used for 
children and tax dependents in certain living situations, as described in 42 CFR 435.603(f)(2)(i)-
(iii). 
 
Once the composition of an individuals household has been established, additional rules are 
applied to determine whose income is counted in household income.  Generally, the income of a 
tax dependent in a household is not counted unless it is expected that the dependent will be 
required to file a federal tax return  i.e., the income of the dependent is at or above the tax-filing 
thresholds for tax dependents under the IRC.  Under regulations at 42 CFR 435.603(d)(2), the 
income of children in non-filing households also generally is excluded from household income 
unless a childs income meets the federal tax filing threshold.2 
  
The TCJA, the BBA of 2018 and the HEALTHY KIDS Act each amended the Act as well as tax 
rules under the IRC in several ways, which impact the MAGI-based methodologies for Medicaid 
and CHIP.  The following discussion explains the changes brought about by these new laws. 
  
Changes to Tax Filing Thresholds 
 
In 2017, a single tax dependent under age 65 and not blind met the federal tax filing threshold if 
he or she had $6,350 or more of gross income or $1,050 or more of unearned income.  Gross 
income includes both earned and unearned income.  This meant that, generally, for a child with 
unearned income below $1,050 and gross income below $6,350, none of the childs income 
would be included in determining household income.  In contrast, all of the income of a child 
with unearned income equal to or greater than $1,050 or total gross income equal to or greater 
than $6,350 generally would be counted in household income. 
 
                                                           
2 Under MAGI-based methods, a childs income is always counted when the child is the only person in his/her 
MAGI-based household (or is living with his/her sibling(s)), regardless of whether or not the childs income exceeds 
the filing threshold.  For example, the childs income is counted in the case of a child living with his or her 
grandparent(s) and neither parent is living with them nor claiming the child as a tax dependent.  42 CFR 
435.603(d)(1)  Page 3  State Health Official 
 
The TCJA modified the tax filing threshold for most individuals.  For tax year 2018, single tax 
dependents who are under age 65 and not blind must file a federal tax return if any of the 
following apply for the tax year:3  
 
1.  Unearned income is more than $1,050;  
2.  Earned income is more than $12,000;  
3.  Gross income is more than the larger of   
a.  $1,050; or  
b.  Earned income (up to $11,650) plus $350.  
 
Further, the filing threshold is increased for tax dependents who are age 65 or older or who are 
blind.  For tax year 2018, single tax dependents who are age 65 or older and/or who are blind 
must file a federal tax return if any of the following apply for the tax year:  
 
1.  Unearned income is more than $2,650 ($4,250 if 65 or older and blind);  
2.  Earned income is more than $13,600 ($15,200 if 65 or older and blind);  
3.  Gross income is more than the larger of   
a.  $2,650 ($4,250 if 65 or older and blind); or  
b.  Earned income (up to $11,650) plus $1,950 ($3,550 if 65 or older and blind).  
 
Attachment A includes a table comparing the 2017 and 2018 tax filing thresholds.  The IRS 
updates the standard deduction and filing thresholds annually for inflation. 
  
Impact on Household Composition 
 
For years prior to 2018, tax filers were allowed a deduction for each of their personal 
exemptions, including their tax dependents.  The TCJA reduced the personal exemption 
deduction amount to $0 for tax years 2018 through 2025, meaning that tax filers will no longer 
claim a deduction for their tax dependents on their federal tax return.  Although taxpayers will no 
longer claim personal exemption deductions, they must still claim their dependents on their tax 
return by putting the name and Social Security Number of the dependent on the return to be 
eligible for certain tax benefits such as the dependent care credit and the premium tax credit for 
the childs health insurance coverage.  Claiming dependents also remains relevant for 
determining household composition under the MAGI-based methodologies used by Medicaid 
and CHIP.  Thus, there is no change to the rules governing household composition under 42 CFR 
435.603(f) for purposes of making MAGI-based eligibility determinations.4 
 
Changes to Countable Income  
 
In addition to the changes noted above, the BBA of 2018 and TCJA made several changes to the 
taxability of certain items, which similarly impact MAGI-based methodologies. 
 
                                                           
3 See IRS Publication 501, Table 2.  https://www.irs.gov/pub/irs-pdf/p501.pdf. 
4 See: https://www.irs.gov/pub/irs-drop/n-18-84.pdf.  Page 4  State Health Official 
 
Counting of Qualified Lottery and Gambling Winnings in MAGI-based Methods 
 
Under 42 CFR 435.603(e)(1) of the current regulations describing the MAGI-based 
methodologies, non-recurring income received as a lump sum is generally counted (if it is 
taxable) as income only in the month received; if not spent, the money converts to savings, 
which is a resource.5  Section 53103 of the BBA of 2018 supersedes this regulatory rule in the 
case of qualified lottery winnings and qualified lump sum income (i.e., gambling) of 
$80,000 or greater.  Specifically, section 53103, which added paragraph (K) to section 
1902(e)(14) of the Act, requires that covered lottery and gambling winnings of $80,000 or 
greater, which are received in a single payout, be counted not only in the month received, but 
over a period of up to 120 months.  The statute provides a formula for determining this period, 
depending on the amount of the winnings.  States must apply this formula to qualified lottery or 
gambling winnings received beginning on or after January 1, 2018.  
 
Qualified Lottery Winnings.  Under section 1902(e)(14)(K)(v) of the Act, the term qualified 
lottery winnings is defined as winnings from a sweepstakes, lottery, or pool described in 
section 4402 of the IRC (which generally requires that these particular activities be conducted by 
a state agency or under the authority of state law), or winnings from a lottery operated by a 
multistate or multijurisdictional lottery association.  Multijurisdictional lotteries include those 
that include multiple entities of government.  
 
While lottery winners generally have a choice between receiving a single payment or an annuity 
that pays out in installments over a period of time (often in annual payments over 20 or 30 
years), the definition of qualified lottery winnings in section 1902(e)(14)(K)(v) by its own 
terms applies to the single payout option.  Lottery winnings paid out in installments are not 
required to be considered qualified lottery winnings under the statute, and we do not think that 
interpreting the term to include such winnings would be consistent with the purpose of the 
statute.  In our analysis of the potential impact of the formula for qualified lottery winnings on an 
annuity paid in installments, we found through many permutations of winnings that some 
individuals could have winnings counted for a shorter time and others for a longer time under the 
formula as compared to existing MAGI-based income counting.  Due to the complexity of 
various lotteries, payment amounts and scenarios, and in the absence of rulemaking to implement 
this law, at this time we are not interpreting the definition of qualified lottery winnings beyond 
the plain language of the statute.  Therefore, lottery winnings paid out in installments would be 
treated the same as other types of recurring income under 42 CFR 435.603(e).6  
 
With respect to non-cash prizes, like a car or boat, the statute does not clearly specify whether 
such prizes are considered qualified lottery winnings under section 1902(e)(14)(K)(v) of the 
Act.  As an example, the winner of a sweepstakes may be awarded a boat, which is appraised at a 
value of $110,000.  Unlike a cash prize, however, a non-cash prize like the boat will begin to 
depreciate immediately.  Depending on the length of time that elapses between receipt and sale 
                                                           
5 There is one exception to this rule in the case of beneficiaries who receive lump sum income in a state that has 
elected the option to use projected annual household income for current beneficiaries under 42 CFR 435.603(h)(2). 
6 To address the fluctuations in monthly income of a lottery winner receiving annual annuity payments, under 
MAGI-based rules at 42 CFR 435.603(h)(3), states currently may elect an option to account for reasonably 
predictable future income by prorating lottery payments over a 12-month period to determine an average current 
monthly income for Medicaid and CHIP.    Page 5  State Health Official 
 
of the item, the fair market value could be considerably less than the original appraised value.  
Therefore, we believe that non-cash prizes should continue to be counted as lump sum income in 
the month in which they are received and not counted as qualified lottery winnings. 
 
Qualified Lump Sum Income.  Section 1902(e)(14)(K)(vi) of the Act defines qualified lump sum 
income as income that is received as a lump sum from monetary winnings from gambling.  
Under this statute, the Secretary has discretion to define gambling, except that the activities 
described in 18 U.S.C 1955(b)(4) must be included in the definition.  These activities include: 
betting pools; wagers placed through bookmakers; slot machines; roulette wheels; dice tables; 
lotteries; and bolita or numbers games, or the selling of chances therein.  The Secretary will 
consider other activities proposed by one or more states to be included in the definition of 
gambling.  Absent a determination by the Secretary that inclusion of other activities in the 
definition of gambling is appropriate, states may not include any other activities.   Because the 
statute specifically defines qualified lump sum income as monetary winnings from gambling 
(emphasis added), non-cash prizes are not counted as qualified lump sum income for the 
purposes of section 1902(e)(14)(K) of the Act 
  
Formula for Counting Qualified Winnings.  For qualified winnings from lotteries or gambling 
activities occurring on or after January 1, 2018, states must count the winnings according to the 
following formula: 
 
Winnings less than $80,000 are counted in the month received;  
  Winnings of $80,000 but less than $90,000 are counted as income over two months, with 
an equal amount counted in each month; and 
  For every additional $10,000 one month is added to the period over which total winnings 
are divided, in equal installments, and counted as income. 
 
The maximum period of time over which winnings may be counted is 120 months, which would 
apply for winnings of $1,260,000 and above.  A table showing the amount of monthly income 
attributed to increasing amounts of qualified winnings and the number of months over which the  
winnings is counted appears in Attachment B. 
  
Treatment of Winnings for Other Household Members.  Under section 53103(b)(2) of the BBA 
of 2018, the requirement to count qualified lottery and gambling winnings in household income 
over multiple months applies only to the individuals receiving the winnings.  The determination 
of household income for other members of the individuals household are not affected.  Thus, for 
example, the total amount of qualified lottery or gambling winnings of a spouse or parent 
continues to count only in the month received in determining the eligibility of the other spouse 
and children. 
  
Verification of lottery and gambling winnings.  Under regulations at 42 CFR 435.940 through 
435.952 and 457.380, states may accept self-attestation or require other verification of lottery 
and gambling winnings.  If a state requires other verification, per regulations at 42 CFR 
435.952(c), the agency must first access available electronic data sources (such as a state lottery 
winner database, if available) and may accept self-attestation of lottery and gambling winnings 
before requesting documentation from the individual.   Page 6  State Health Official 
 
Hardship exemption.  Section 1902(e)(14)(K)(iii) of the Act requires that states establish an 
undue medical or financial hardship exemption, through a procedure and based on a standard 
established by the state, in accordance with guidance provided by the Secretary, for individuals 
impacted by the new treatment of lottery and gambling winnings.  Pending further guidance from 
the Secretary, states should develop a procedure and establish a reasonable standard for this 
hardship exemption. 
  
State responsibilities to ineligible applicants and beneficiaries.  Applicants and beneficiaries 
affected by the counting of lottery or gambling winnings maintain the ability to request a 
determination on a non-MAGI basis, as described at 42 CFR 435.911.  Individuals determined 
financially ineligible for Medicaid or CHIP due to lottery or gambling winnings also have the 
right to purchase health coverage through a Qualified Health Plan (QHP) on the Exchange and, if 
eligible, claim a premium tax credit (PTC) for such purchase.  Section 1902(e)(14)(K)(iv) of the 
Act addresses certain state responsibilities to such applicants and beneficiaries, related to notices 
and technical assistance.  The Act specifies that the state agency provide notice to affected 
individuals of the date on which the lottery or gambling winnings no longer will be counted for 
the purpose of Medicaid or CHIP eligibility.  States also must notify affected individuals of the 
hardship exemption.  In addition, the Act requires states to inform the individual of the 
individuals opportunity to enroll in a QHP on the Exchange, which states meet through 
implementation of notices regulations at 42 CFR 435.917, 435.1200(e) and 457.340(e). 
  
Section 1902(e)(14)(K)(iv)(II) requires states to provide technical assistance to the individual 
seeking to enroll in a QHP.  Consistent with coordination regulations at 42 CFR 435.1200(e) 
and 42 CFR 457.350(i), the state agency takes appropriate action to transfer the electronic 
account of an individual financially ineligible for Medicaid or CHIP to the Exchange.7  
Inasmuch as the existing account transfer procedures that states use under the coordination 
regulations afford individuals needed assistance and provide the opportunity to enroll in 
appropriate coverage, such existing procedure satisfy the requirement to provide technical 
assistance. 
  
MAGI Exclusion of Parent Mentor Compensation 
 
Section 3004 of the HEALTHY KIDS Act extended the outreach and enrollment grant program 
for children who are eligible for, but not enrolled in, Medicaid or CHIP.  Section 2113(f)(1)(E) 
of the Act provides that national, state, local, or community-based public or nonprofit private 
organizations that use parent mentors, are eligible to receive such grants.  A parent mentor, 
defined in section 2113(f)(5) of the Act, is a parent or guardian of a Medicaid or CHIP-eligible 
child who is trained to assist families with children who have no health insurance coverage with 
respect to improving the social determinants of the health of such children. 
  
                                                           
7 Qualified lottery and gambling winnings are subject to federal income taxation in the year received.  Because PTC 
for subsidized purchase of a QHP is based on taxable income during the tax year, if the amount of winnings results 
in individuals losing Medicaid or CHIP eligibility and their household income, including the lottery or gambling 
winnings, exceeds the income limit for PTC (400 percent of the federal poverty level (FPL)), those individuals will 
not qualify for a subsidized health plan for the year in which the winnings are received.  However, because section 
1902(e)(14)(K) of the Act applies only to MAGI-based methods for Medicaid and CHIP, such winnings will not be 
counted in subsequent years for purposes of eligibility for the PTC for purchase of coverage through the Exchange.    Page 7  State Health Official 
 
In order to protect parent mentors from losing eligibility for Medicaid, section 3004 of the 
HEALTHY KIDS Act amends section 1902(e)(14) of the Act to exclude parent mentor 
compensation from their MAGI-based household income.  New paragraph (J) provides that 
[a]ny nominal amount received by an individual as compensation, including a stipend, for 
participation as a parent mentor in a grant-funded program under section 2113 of the Act shall 
be disregarded for purposes of determining income eligibility of such individual for medical 
assistance.  The disregard of parent mentor income applies only in the case of parent mentors 
working with a grantee organization under section 2113 of the Act. 
  
Nominal amounts paid as a stipend to a parent mentor are excluded from income.  For payments 
received as wages or other compensation, states have discretion to determine the threshold of a 
nominal amount.  CMS will alert states if a grant is awarded under section 2113 of the Act in 
which the grantee plans to use parent mentors.  We will be available to work with those states 
and grantees to establish a process for applicants and beneficiaries to identify parent mentor 
income that is not counted in determining eligibility under section 1902(e)(14)(J) of the Act. 
  
Alimony Received 
 
Prior to enactment of the TCJA, alimony as defined in IRC section 71 was considered taxable 
income to the recipient.  Section 11051 of the TCJA modified the alimony rules.  Under the 
TCJA, alimony payments under separation or divorce agreements finalized after December 31, 
2018, or pre-existing agreements modified after December 31, 2018, are not included in the 
income of the recipient.  For individuals with alimony agreements finalized on or before 
December 31, 2018, alimony continues to be included in the income of the recipient for the 
duration of the agreement unless or until the agreement is modified.  Treatment of alimony paid 
is discussed below.  The treatment of child support is unchanged: child support is not included 
in the income of the recipient and thus not counted in MAGI-based income. 
  
Discharged Student Loan Debt 
 
Student loan debt that is discharged, forgiven or cancelled is generally treated as taxable income 
to the borrower, and therefore the amount of discharged debt is included in MAGI-based 
income.8  However, section 11031 of the TCJA amended section 108(f) of the IRC to provide 
an exception for tax years 2018 through 2025 in cases of discharged debt on account of the 
death or permanent and total disability of the student.  Under the amendment, discharged 
student loan debt is not included in income (and not counted in the MAGI-based income) of a 
borrower if the debt is discharged on account of the death or the permanent and total disability 
of the student.  (The borrower and the student may or may not be the same person.)  Student 
loan debt discharged under the foregoing circumstances is not counted as income in 
determining household income for other members of the borrowers household. 
  
Changes to Deductions 
 
                                                           
8 A notable exception is the Public Service Loan Forgiveness program and certain teacher loan/healthcare loan 
forgiveness programs, which do not lead to taxable income (26 USC 108(f)(1)).  Page 8  State Health Official 
 
As noted above, certain deductions are allowed under the IRC in determining adjusted gross 
income, upon which MAGI is based.  The TCJA eliminated several of these deductions. 
 
Moving Expenses 
 
Section 11049 of the TCJA, amending section 217 of the IRC, eliminated the deduction for 
qualified moving expenses for tax years 2018 through 2025.  Moving expenses, including 
expenses incurred by the individual as well as reimbursements from an employer, should no 
longer be deducted in calculating MAGI.  This change does not apply to active duty members 
of the military who are ordered to move or change duty station. 
  
Alimony Paid 
 
Under the TCJA, alimony payments under separation or divorce agreements finalized after 
December 31, 2018, or pre-existing agreements modified after December 31, 2018, are not 
deductible by the payer.  For individuals with alimony agreements finalized on or before 
December 31, 2018, alimony payments continue to be deductible.  Child support payments 
remain non-deductible. 
  
Tuition and Fees Deduction 
 
The payment of tuition and fees for qualified education expenses for postsecondary education 
had been an allowable deduction.  Amounts paid for these expenses for the taxpayer, spouse or 
tax dependent typically could be deducted in computing adjusted gross income.  Section 40203 
of the BBA of 2018 amended section 222(e) of the IRC to eliminate this deduction, effective 
January 1, 2018. Such tuition and fees paid are no longer deductible in calculating MAGI, 
effective January 1, 2018. 
  
The tuition and fees deduction is separate and distinct from the exclusion of scholarships, 
awards or fellowships used solely for educational purposes from MAGI for purposes of 
Medicaid and CHIP eligibility.  This exclusion, which also applies for determining MAGI 
under the IRC, remains in effect under the Medicaid regulations at 42 CFR 435.603(e)(2) and 
CHIP regulations at 42 CFR 457.315.  
 
State Requirement to Report Enrollment in MEC 
 
Under Section 6055 of the IRC, states are required to provide Medicaid and CHIP beneficiaries 
with IRS Form 1095-B, indicating that the beneficiary had minimum essential coverage (MEC) 
for the tax year.  States also must provide this information to the IRS.  Under section 5000A of 
the IRC, individuals not enrolled in MEC and not exempt are subject to a shared responsibility 
payment.  The TCJA reduced the shared responsibility payment to $0 beginning in tax year 
2019.  However, it did not eliminate the requirement for states to furnish Form 1095-B or to 
provide information about Medicaid and CHIP enrollment to IRS.  Therefore, states must 
continue to send Forms 1095-B for Medicaid and CHIP coverage for tax year 2019 and beyond.  
If there is any change to these reporting requirements, CMS will communicate the changes to 
states. 
  Page 9  State Health Official 
 
Operational Considerations 
 
In order to implement the changes to MAGI-based methods described in this letter, states may 
need to make updates to eligibility policies and procedures and changes to eligibility systems 
logic.  In addition, states will need to be able to collect the relevant application information in 
order to make accurate Medicaid and CHIP determinations.  Capturing the information may 
involve changes to applications and other forms, additional instructions or help text, or new 
application questions.  In order to implement needed systems changes, and in accordance with 
42 CFR 433.112(b)(14), states may request enhanced 90 percent federal financial participation 
for eligibility technology investments funded through an approved Advanced Planning 
Document.  CMS remains available to provide technical assistance to states on implementation 
of such changes to ensure that states are able to make the changes as soon as possible. 
  
We hope this information will be helpful.  Questions and comments about the changes to 
MAGI-based methodologies discussed in this bulletin may be directed to Stephanie Kaminsky, 
Director, Division of Medicaid Eligibility Policy, CMCS, at 
Stephanie.Kaminsky@cms.hhs.gov. Requests for technical assistance on revisions to the states 
application and renewal processes needed to implement the changes to MAGI-based 
methodologies may be directed to Jessica Stephens, Director, Division of Enrollment Policy and 
Operations, CMCS, at Jessica.Stephens@cms.hhs.gov. 
  
Sincerely,  
 
Calder Lynch 
Deputy Administrator and Director 
 
 
Enclosures 
 
cc: 
 
National Association of Medicaid Directors 
 
National Academy for State Health Policy 
 
National Governors Association 
 
American Public Human Services Association 
 
Association of State Territorial Health Officials 
 
Council of State Governments 
 
National Conference of State Legislatures 
  Page 10  State Health Official 
 
Academy Health  Page 11  State Health Official 
 
Attachment A  
Tax Filing Thresholds 
 
  2017 Tax Filing Thresholds  2018 Tax Filing Thresholds 
Personal Exemption Amount  $4,0509  $0 
Standard Deduction for most  $6,350 (gross) - single  $12,000 (gross) - single11  
people10 
Tax filing threshold for single  $1,050 unearned; or  $1,050 unearned; or 
tax dependent12  $6,350 earned; or  $12,000 earned; or 
Gross income is more than  Gross income is more than the 
the larger of:  larger of: 
  $1,050; or    $1,050; or  
  Earned income (up to    Earned income (up to 
$6,000) plus $350  $11,650) plus $350 
 
Tax dependents > 65 or blind  $2,600 unearned; or  $2,650 unearned; or 
$7,900 earned; or  $13,600 earned; or 
Gross income is more than  Gross income is more than the 
the larger of:  larger of: 
  $2,600; or    $2,650; or 
  Earned (up to $6,000)    Earned income (up to 
plus $1,900  $11,650) plus $1,950 
   
Tax dependent > 65 and blind  $4,150 unearned; or  $15,200 earned  
$9,450 earned; or  $4,250 unearned income  
Gross income is more than  Gross income is more than the 
the larger of:  larger of: 
  $4,150; or    $4,250; or 
  Earned (up to $6,000)     Earned income (up to 
plus $3,450  $11,650) plus $3,550  
 
 
 
   
                                                           
9 See IRS Pub 17, Chapter 3; and Pub 501. 
10 For individuals who are under age 65, not blind, not head of household and no one else can claim individual as a 
dependent. See IRS Pub 17, Table 20-1 (2017) and Table 21-1 (2018); and IRS Pub 501, Table 6. 
11 To be increased annually for inflation. See Internal Revenue Bulletin 2018-10 (March 5, 2018). 
12 For individuals under age 65 and not blind.  See IRS Pub 501, Table 2.  Page 12  State Health Official 
 
Attachment B  
Lottery and Gambling Winnings:  
Months over which Income is Counted by Income Increment 
 
# Months  # Months 
Counted for  Counted for 
From $  Up To $  Medicaid  From $  Up To $  Medicaid 
1  79,999  1  420,000  429,999  36 
80,000  89,999  2  430,000  439,999  37 
90,000  99,999  3  440,000  449,999  38 
100,000  109,999  4  450,000  459,999  39 
110,000  119,999  5  460,000  469,999  40 
120,000  129,999  6  470,000  479,999  41 
130,000  139,999  7  480,000  489,999  42 
140,000  149,999  8  490,000  499,999  43 
150,000  159,999  9  500,000  509,999  44 
160,000  169,999  10  510,000  519,999  45 
170,000  179,999  11  520,000  529,999  46 
180,000  189,999  12  530,000  539,999  47 
190,000  199,999  13  540,000  549,999  48 
200,000  209,999  14  550,000  559,999  49 
210,000  219,999  15  560,000  569,999  50 
220,000  229,999  16  570,000  579,999  51 
230,000  239,999  17  580,000  589,999  52 
240,000  249,999  18  590,000  599,999  53 
250,000  259,999  19  600,000  609,999  54 
260,000  269,999  20  610,000  619,999  55 
270,000  279,999  21  620,000  629,999  56 
280,000  289,999  22  630,000  639,999  57 
290,000  299,999  23  640,000  649,999  58 
300,000  309,999  24  650,000  659,999  59 
310,000  319,999  25  660,000  669,999  60 
320,000  329,999  26  670,000  679,999  61 
330,000  339,999  27  680,000  689,999  62 
340,000  349,999  28  690,000  699,999  63 
350,000  359,999  29  700,000  709,999  64 
360,000  369,999  30  710,000  719,999  65 
370,000  379,999  31  720,000  729,999  66 
380,000  389,999  32  730,000  739,999  67 
390,000  399,999  33  740,000  749,999  68 
400,000  409,999  34  750,000  759,999  69 
410,000  419,999  35  760,000  769,999  70  Page 13  State Health Official 
 
# Months  # Months 
Counted for  Counted for 
From $  Up To $  Medicaid  From $  Up To $  Medicaid 
770,000  779,999  71  1,040,000  1,049,999  98 
780,000  789,999  72  1,050,000  1,059,999  99 
790,000  799,999  73  1,060,000  1,069,999  100 
800,000  809,999  74  1,070,000  1,079,999  101 
810,000  819,999  75  1,080,000  1,089,999  102 
820,000  829,999  76  1,090,000  1,099,999  103 
830,000  839,999  77  1,100,000  1,109,999  104 
840,000  849,999  78  1,110,000  1,119,999  105 
850,000  859,999  79  1,120,000  1,129,999  106 
860,000  869,999  80  1,130,000  1,139,999  107 
870,000  879,999  81  1,140,000  1,149,999  108 
880,000  889,999  82  1,150,000  1,159,999  109 
890,000  899,999  83  1,160,000  1,169,999  110 
900,000  909,999  84  1,170,000  1,179,999  111 
910,000  919,999  85  1,180,000  1,189,999  112 
920,000  929,999  86  1,190,000  1,199,999  113 
930,000  939,999  87  1,200,000  1,209,999  114 
940,000  949,999  88  1,210,000  1,219,999  115 
950,000  959,999  89  1,220,000  1,229,999  116 
960,000  969,999  90  1,230,000  1,239,999  117 
970,000  979,999  91  1,240,000  1,249,999  118 
980,000  989,999  92  1,250,000  1,259,999  119 
990,000  999,999  93  1,260,000  or higher  120 
1,000,000  1,009,999  94   
1,010,000  1,019,999  95 
   
1,020,000  1,029,999  96 
1,030,000  1,039,999  97  Page 14  State Health Official 
 
Attachment C  
Frequently Asked Questions:  
Changes to Modified Adjusted Gross Income (MAGI)-based Income Methodologies 
 
Lottery and Gambling Winnings  
 
Q1.  Can you provide some examples of how lottery and gambling winnings would 
impact individual applicants and beneficiaries?  
 
A1.  Consider the following examples:  
 
1.  Sally is enrolled in Medicaid with MAGI-based household income of $1,200 per 
month.  She is single and has no dependents.  On New Years Eve 2018, Sally wins 
$192,000 playing roulette.  How do Sallys gambling winnings impact her MAGI-
based income and eligibility for Medicaid? 
a.  Using the chart in Attachment B, we see that Sallys winnings of $192,000 
are counted in her MAGI-based income for 13 months, including the month 
in which she receives the winnings.  So they are counted in December 2018 
through December 2019. 
b.  An equal amount of $14,769 is counted in each month ($192,000/13 months 
= $14,769 per month).   
c.  Sallys MAGI-based monthly income for December 2018 through December 
2019 is $15,969 ($14,769 gambling winnings + $1,200 other MAGI-based 
income) assuming no changes to her other MAGI-based income.   
d.  Because Sallys income exceeds the states MAGI-based income standard, 
the agency would provide Sally with a notice alerting her that she is no 
longer eligible for Medicaid and her coverage will be terminated following 
the advance notice period.  The notice will also tell Sally that beginning 
January 1, 2020, her gambling winnings will no longer be counted in her 
MAGI-based income.  
e.  The Medicaid agency will transfer Sallys account to the Exchange.  Because 
she is losing eligibility for Medicaid, she qualifies for a special enrollment 
period and the Exchange will determine if she is eligible for advanced 
payments of the premium tax credit. 
  
2.  Joe is a single individual who has no dependents.  He earns $700 per month and has 
no other income or deductions.  Joe wins a scratch-off ticket paying out $50,000 on 
May 15, 2019.  The following month, Joe applies for Medicaid.  How do his lottery 
winnings impact his MAGI-based income and eligibility for Medicaid? 
a.  Using the chart in Attachment B, we see that Joes lottery winnings are 
counted in MAGI-based methods for only one month.  Because his winnings 
are less than $80,000, they are counted only in the month received.  So the 
full amount of $50,000 is counted in May of 2019. 
b.  When Joe applies for Medicaid in June, his MAGI-based income will be 
$700 and that will be used to determine his financial eligibility for Medicaid. 
  Page 15  State Health Official 
 
Q2.  How do lottery and gambling winnings received by parents impact their childrens 
eligibility for Medicaid?  
 
A2.  The changes to section 1902(e)(14) of the Act made by the Bipartisan Budget Act of 
2018 (Pub. L. No. 115-123, BBA of 2018) only impact the MAGI-based household 
income of the individuals who themselves receive the lottery or gambling winnings.  
Therefore, when determining Medicaid eligibility for a child who lives with a parent, the 
parents qualified lottery or gambling winnings would be treated the same as any other 
lump sum income received and included in the childs MAGI-based income only in the 
month received, as described at 42 CFR 435.603(e)(1).  Consider the following 
example.  
 
Justine is a single parent who lives with her son, Oscar, who is age 7.  Justine and Oscar 
have monthly MAGI-based income of $2,000 from Justines job.  On April 14, 2019, 
Justine submits a Medicaid application for Oscar.  The following week Justine wins the 
state lottery and receives a lump sum payment of $755,000.  How do Justines lottery 
winnings impact Oscars MAGI-based income and eligibility for Medicaid? 
  
For the month of April, Oscars MAGI-based household income will be calculated as 
$755,000 in lottery winnings, plus $2,000 in the other MAGI-based income, for a total 
monthly income of $757,000 for a family of two.  For the month of May, Oscars 
MAGI-based income will be $2,000.  Justines lottery winnings would count toward 
Oscars MAGI-based income only in the month of April.  If Justine applies for 
Medicaid, using the chart in Attachment B, her winnings of $755,000 would be counted 
in her MAGI-based income for 69 months (or, 5 years and 9 months), beginning in the 
month in which she receives the winnings.  That is, Justines winnings would be 
counted in her MAGI-based income in April 2019 through December 2024.  An equal 
amount of $10,942 would be counted in each month ($755,000/69 months = $10,942 per 
month). 
  
Q3.  Do winnings from any state count under the lottery and gambling winnings 
methodology?  
 
A3.  Yes.  Lottery and gambling winnings are treated the same regardless of the state in 
which they were won.  The methodology in section 1902(e)(14)(K) of the Act applies to 
winnings an individual receives from any state.  
 
Q4.  How are multiple instances of gambling winnings counted under the lottery and 
gambling winnings methodology?  
 
A4.  If a Medicaid or CHIP applicant or beneficiary wins monetary winnings from gambling 
multiple times, the lottery and gambling winnings methodology is applied separately to 
each instance of winning.  Where the amount of months over which winnings are 
counted overlap, those months are counted concurrently (each instance beginning and 
ending as per the formula) and the countable income attributed to each month is added 
together for each month.   Page 16  State Health Official 
 
Q5.  Are gambling losses subtracted from gambling winnings for the purposes of the 
lottery and gambling winnings methodology?  
 
A5.  No.  Although there are circumstances in which gambling losses may be deducted from 
income for the purpose of federal income taxes, gambling losses are not deducted from 
winnings for the purposes of the lottery and gambling winnings methodology under 
MAGI-based income methodologies for Medicaid and CHIP.  
 
Q6.  How should the gap-filling rule at 42 CFR 435.603(i) apply to individuals whose 
income is counted under the lottery and gambling winnings methodology? 
  
A6.  The Medicaid gap-filling rule at 42 CFR 435.603(i), promulgated in March 2012, was 
designed to prevent a potential gap in coverage for low-income individuals caused by 
the slight differences in the MAGI methodologies used for purposes of premium tax 
credit (PTC) eligibility and the MAGI-based methodologies used for purposes of 
Medicaid and CHIP eligibility.  Under the gap-filling rule, if an individuals MAGI-
based monthly household income for purposes of Medicaid eligibility is above the 
applicable Medicaid income standard and the individuals MAGI-based annual 
household income for purposes of PTC eligibility is under 100 percent of the FPL (and 
ineligible for a PTC due to too little income) the state is required to apply the MAGI 
methodologies generally used for purposes of PTC eligibility in determining the 
individuals eligibility for Medicaid.  
 
The different treatment of lottery and gambling winnings under the MAGI 
methodologies for PTC eligibility versus the MAGI-based methodologies used for 
Medicaid and CHIP may result in a situation in which an individuals household income 
for purposes of PTC eligibility in a given year will be under 100 percent FPL, but his or 
her income applying MAGI-based methodologies (for purposes of Medicaid and CHIP 
eligibility) will be over the Medicaid and CHIP eligibility thresholds.  If applied in this 
situation, the gap filling rule would result in approval of Medicaid or CHIP eligibility in 
the year after receipt of the winnings.  If applying the lottery and gambling methodology 
would result in income over the Medicaid eligibility standard, applying the gap-filling 
rule and determining such an individual eligible would not be consistent with the 
intended result under the BBA of 2018.  We believe that the new statutory provision 
supersedes the regulatory policy in this situation.  Thus, we have determined that states 
should not apply the gap-filling regulation at 42 CFR 435.603(i) if doing so would result 
in a determination contrary to the determination reached after applying the lottery and 
gambling methodology added at section 1902(e)(14)(K) of the Act by the BBA. 
  
Q7.  Are states required to keep a record of individuals found ineligible for a period of 
time due to lottery or gambling winnings?  
 
A7.  Per regulations at 42 CFR 431.17 and 435.914(a), states are required to maintain case 
records on each applicant and beneficiary containing, among other things, facts essential 
to supporting the agencys denial or termination of eligibility.  States are expected to 
follow their standard recordkeeping protocol when an individual is denied or terminated  Page 17  State Health Official 
 
due to lottery or gambling winnings, including the period of time such records are 
maintained. States are not required to establish a separate process specific to individuals 
denied or terminated from coverage due to lottery or gambling winnings. 
 
When an individual previously denied or terminated from coverage subsequently 
reapplies for coverage, states typically are able to identify the individuals previous 
application or enrollment in the states program.  Some states may have ready access to 
the record of the individuals prior winnings, and such states would be expected to take 
this information into account in processing the individuals new application. Other states 
may want to establish a process to maintain a record of the monthly amount of winnings 
of former applicants and beneficiaries to be counted as income as well as the duration 
for which that amount is counted.  
 
Other Questions 
 
Below we answer frequently asked questions which are not related to the lottery and gambling 
winnings methodology discussed in this letter. 
 
Q8.  Now that alimony payments are treated differently under MAGI-based 
methodologies depending on the date that the agreement was consummated or last 
revised, how can states verify the date of execution of separation or divorce 
agreements that include provision for alimony?  
 
A8.  Under the general verification regulations at 42 CFR 435.945(a) and 435.952(c), states 
have the flexibility to accept attestation of the date of the finalization or modification of 
a separation or divorce agreement or to require paper documentation, provided that 
electronic verification is not available or is inconsistent with the individuals attestation. 
 
Q9.  Does the change to the treatment of alimony affect or render obsolete the 
mandatory eligibility group for extended Medicaid due to increased collection of 
spousal support (42 CFR 435.115)?  
 
A9.  No.  The discussion of including alimony in income relates only to MAGI-based 
methods, and not to any particular MAGI-based eligibility group.  In particular, the 
group for extended Medicaid eligibility based on the increased collection of spousal 
support remains in effect as described under 42 CFR 435.115. 
  
As noted in the SHO letter, if a separation or divorce agreement (or a modification to a 
pre-existing agreement) was finalized after December 31, 2018, the alimony payments 
under the agreement would not be counted in MAGI income and an increase would not 
trigger the four-month extension of Medicaid eligibility.  However, if a separation or 
divorce agreement was finalized on or before December 31, 2018 (and is not modified 
thereafter), the alimony payments under the agreement must be included in the income 
of the recipient.  In circumstances in which such alimony income meets the definition of 
spousal support under title IV-D of the Act, and the recipient has an increased 
collection of such support (e.g., through a scheduled increase, payment of arrears, or  Page 18  State Health Official 
 
through new collection on an existing support obligation) through the IV-D agency, the 
family may qualify for the four-month extension of Medicaid eligibility group under 42 
CFR 435.115. 
  
Spousal support that does not meet the IRS definition of alimony is not included in 
income and therefore an increased collection of such support would not trigger the 
extension under 42 CFR 435.115.  The five requirements for spousal support to be 
alimony are:  
 
1.  Payment must be in cash;  
2.  Payment is received by (or on behalf of) a spouse under a divorce or separation 
agreement;  
3.  The divorce or separation instrument does not designate such payment as a 
payment not includable in gross income and not allowable as a deduction;  
4.  The payee spouse and the payer spouse are not members of the same household 
at the time such payment is made; and 
5.  There is no liability to make any such payment (in cash or property) as a 
substitute for such payments after the death of the payee spouse.