What Are Expenses and Deductions for Medi-Cal? MAGI vs. Non-MAGI

Medi-Cal deductions and expenses fall into two separate systems, and which one applies to you decides which deductions you can claim. If you are under 65 and applying as an adult, parent, pregnant woman, or child, California uses MAGI (Modified Adjusted Gross Income) rules, which only recognize the above-the-line adjustments from your federal tax return. If you are aged, blind, or disabled, or linked to Supplemental Security Income, Non-MAGI rules apply, and those allow court-ordered support payments, health insurance premiums, and disability-related work expenses in addition to a set of automatic income disregards. For most adults, the qualifying cutoff sits at 138% of the federal poverty level, which for a single person in 2026 works out to $21,597 per year.1DHCS. Qualify for Medi-Cal

Mixing up the two systems is the most common mistake applicants make. A deduction that legitimately lowers your income under Non-MAGI rules may do nothing under MAGI, and the reverse is also true.

Deductions Under MAGI

If you fall into a MAGI-based program, your allowable deductions are the same above-the-line adjustments used to calculate your federal adjusted gross income. California does not add extras or remove any. The items below are the ones that most often reduce a Medi-Cal applicant’s countable income.2DHCS. MAGI Income and Deduction Types

  • Student loan interest, up to $2,500 per year on qualified education loans.
  • Traditional IRA contributions. Roth IRA contributions do not count, because they are made with after-tax dollars.
  • Educator expenses, up to $300 for teachers and other eligible educators who spend their own money on classroom supplies.
  • Alimony paid under agreements finalized on or before December 31, 2018. Agreements executed after that date lost the deduction under the Tax Cuts and Jobs Act, and those payments do not reduce your MAGI.3Medicaid.gov. Changes to Modified Adjusted Gross Income
  • Unreimbursed moving expenses for active-duty members of the Armed Forces relocating on a permanent change of station, covering household goods, personal effects, storage, and travel (but not meals).4Internal Revenue Service. Moving Expenses for Members of the Armed Forces and the Intelligence Community
  • The deductible half of self-employment tax, contributions to a SEP or SIMPLE retirement plan if you are self-employed, and the self-employed health insurance deduction.

Itemized deductions and tax credits do not count under MAGI. Child support you pay is not deductible either. The IRS treats child support as neither deductible by the payer nor taxable to the recipient, so it has no effect on your adjusted gross income.5Internal Revenue Service. Topic No 452, Alimony and Separate Maintenance If you are applying under a Non-MAGI program, court-ordered child support is deductible there.

Business Expenses if You Are Self-Employed

Medi-Cal does not count your gross receipts if you work for yourself. It counts your net profit after subtracting ordinary and necessary business expenses, which is the same figure you report on Schedule C of your tax return.6Internal Revenue Service. Instructions for Schedule C This is where self-employed applicants have the most room to reduce countable income.

Deductible expenses include supplies, rent for office or workspace, business insurance premiums, vehicle expenses for business use, advertising, professional fees for accountants or attorneys, utilities, depreciation on equipment, and the cost of contract labor. If you use part of your home exclusively for business, the home-office deduction applies as well.6Internal Revenue Service. Instructions for Schedule C

Beyond Schedule C, self-employed individuals also get above-the-line adjustments for the deductible half of self-employment tax, contributions to a qualified retirement plan (SEP-IRA, SIMPLE, or solo 401(k)), and premiums paid for their own health insurance.

Records matter. If your reported expenses look high next to your revenue, expect the county caseworker to ask for receipts, bank statements, or profit-and-loss summaries. Keeping clean books throughout the year is far easier than reconstructing expenses at the last minute.

Deductions Under Non-MAGI

Applicants evaluated under Non-MAGI rules, particularly those in the Aged, Blind, and Disabled Medically Needy programs, get deductions that do not exist under MAGI. They recognize that certain mandatory expenses leave you with less money for basic needs.7DHCS. Non-MAGI Medi-Cal

  • Court-ordered child support you are legally required to pay.
  • Court-ordered spousal support or alimony, regardless of when the agreement was executed.
  • Health, dental, and vision insurance premiums, including Medicare Part B and Part D premiums.

You will need signed copies of the court orders for any support payments, and payment statements or canceled checks for insurance premiums. Without documentation, the caseworker cannot apply the deduction.

Income Disregards if You Are Aged, Blind, or Disabled

Non-MAGI programs for aged, blind, and disabled individuals also provide income disregards that the state subtracts automatically. These follow California Code of Regulations Title 22, Sections 50501 through 50555.8Cornell Law School. California Code of Regulations Title 22 Article 10 – Income They stack in layers:

  • A $20 general disregard applied to any income each month, earned or unearned.
  • An additional $65 disregard applied to earned income.
  • Half of whatever earned income is left after the first two disregards.

A disabled person earning $1,025 per month would not have $1,025 counted against them. The state subtracts $20, then $65, then divides the remaining $940 in half, leaving roughly $470 in countable earned income.

Impairment-Related Work Expenses

Working applicants with disabilities can reduce countable income further through Impairment-Related Work Expenses (IRWE). These are costs you pay specifically because your disability requires them in order to work, such as specialized transportation, modified equipment, prosthetic devices, or attendant care services needed on the job.9Social Security Administration. Ticket to Work – Work Incentives Series – Impairment-Related Work Expenses

The IRWE deduction is applied after the general and earned income disregards. The full amount you pay qualifies as long as the expense is tied to your disability and necessary for employment. You do not have to prorate the cost between work and personal use.10Social Security Administration. POMS DI 10520.030 – Determining When IRWE Are Deductible and How They Are Distributed Receipts and a letter from your employer or physician explaining the connection between the expense and your ability to work will support the claim.

How Deductions Affect Share of Cost

If your income lands above the free-Medi-Cal threshold but you still qualify with a Share of Cost (SOC), every deduction you claim lowers the monthly amount you owe. Your SOC is calculated by subtracting a maintenance need level (currently $600 for an individual) from your monthly countable income after all applicable deductions. Someone with $1,800 in monthly countable income would have a $1,200 Share of Cost.

You only owe that amount in months when you actually receive medical care. In months you use no services, you pay nothing.11DHCS. Share of Cost – Medi-Cal Providers Once you incur enough medical expenses in a given month to meet your SOC, Medi-Cal covers all remaining services for the rest of that month. Expenses that count toward meeting your SOC include doctor visit fees, prescription costs, lab work, medical supplies, and even medically necessary items that Medi-Cal does not normally cover.

Documentation to Have Ready

Every deduction needs backup. The county caseworker will match the numbers on your application against your supporting documents, and inconsistencies cause delays or denials. Pull these together before you start filling out forms:

  • Recent pay stubs, Social Security award letters, pension statements, or self-employment profit-and-loss summaries for income verification.
  • Your most recent federal tax return (Form 1040 with Schedule 1) showing above-the-line adjustments if you are applying under MAGI.
  • Signed court orders for child or spousal support, plus proof of payment such as canceled checks or a payment history from the state disbursement unit.
  • Payment statements or receipts for health, dental, vision, or Medicare premiums.
  • Receipts for specialized equipment or transportation used for IRWE, along with a statement connecting each expense to your disability and your ability to work.

After you submit, the county has 45 days to process the application and issue a decision. If the determination depends on establishing a disability or blindness, the deadline extends to 90 days. You will receive a Notice of Action by mail explaining the outcome, including your Share of Cost if applicable. If the caseworker needs additional documents, you will get a written request with a response deadline, and missing that deadline can result in denial.