What Is Considered Unearned Income for Medicaid?

Medicaid is a joint federal and state healthcare program providing medical assistance to individuals and families with limited income and resources. Eligibility is determined by financial criteria, including an assessment of an applicant’s income. For Medicaid, income is categorized into two types: earned income and unearned income. This classification helps evaluate an applicant’s financial standing against program limits.

Understanding Unearned Income for Medicaid Eligibility

Unearned income refers to any money an individual receives without performing work or services. This contrasts with earned income, which comes from wages, salaries, self-employment earnings, or other compensation for labor. Both income types are considered when assessing an applicant’s financial eligibility for Medicaid, though they are often treated differently in calculation. All income is counted unless specifically excluded by federal or state law. This ensures an applicant’s full financial picture is reviewed for qualification.

Common Categories of Unearned Income

Common types of unearned income for Medicaid eligibility include Social Security benefits (retirement, disability, and survivor benefits). These payments are unearned as they are based on past contributions or a relationship to a contributor, not current work. Pensions and annuities also fall under unearned income, as they are regular payments from retirement plans or investments. Interest from savings accounts or bonds, and dividends from stocks or mutual funds, are also unearned income, representing returns on capital rather than labor.

Rental income, after deducting allowable expenses like mortgage interest, property taxes, and maintenance costs, is another form of unearned income. Distributions from trusts can also be counted. Alimony or spousal support payments received by an applicant are included in this category, as they are court-ordered payments from a former spouse. Veterans’ benefits are generally counted as unearned income.

Unemployment benefits are considered unearned income. Worker’s compensation payments, received due to a work-related injury or illness, also fall into this category. Royalties, paid for the use of copyrighted works or natural resources, are classified as unearned income. Winnings from gambling, lotteries, or other games of chance are also included as unearned income.

Income That Is Not Counted as Unearned Income

While many non-employment incomes are unearned, certain payments are not counted for Medicaid eligibility. Specific tax refunds, such as the Earned Income Tax Credit (EITC), are disregarded. Benefits from programs like the Supplemental Nutrition Assistance Program (SNAP) and housing assistance are excluded from income calculations, as they meet basic needs. Certain one-time payments or gifts may also be disregarded, often up to a specified state limit.

Payments from government programs or settlements, such as Holocaust reparations or some Native American tribal payments, are often excluded. Disaster relief payments are also not counted. Reimbursements for expenses, provided they do not exceed the actual cost incurred, are generally not considered income. Specific portions of student financial aid, intended for tuition, fees, or books, are often disregarded. Funds within ABLE accounts, tax-advantaged savings accounts for individuals with disabilities, are typically not counted as income when withdrawn for qualified disability expenses.

Calculating Countable Unearned Income

After identifying gross unearned income and excluding disregarded types, the next step is calculating the final “countable” unearned income for Medicaid eligibility. From the remaining unearned income, deductions or “disregards” may be applied before comparing the total against Medicaid’s income limits. For example, some Medicaid programs or states may apply a general income disregard, a fixed amount subtracted from an individual’s total income.

For individuals applying under Medically Needy programs or with “spend-down” provisions, medical expenses can be deducted from excess income, reducing countable income to meet eligibility thresholds. Special spousal impoverishment rules exist for married couples where one spouse applies for long-term care Medicaid, preventing the community spouse from becoming impoverished. These rules affect how the couple’s combined income is assessed. Rules for deductions and disregards vary significantly by state and Medicaid program, such as SSI-related Medicaid or Modified Adjusted Gross Income (MAGI)-based Medicaid. The final countable unearned income is then combined with any countable earned income to determine the applicant’s total countable income, which is compared against Medicaid income limits for eligibility.