Do Gifts Count as Income for Covered California?

If your parents, relatives, or friends give you money, help with bills, or make some other financial gift, you may wonder whether that money must be counted as income for Covered California.

Usually, no. Covered California says that gifts do not count as income, and it also says that loan proceeds do not count as income.
Covered California – What Counts as Income

General rule

For most people, a true gift received from a parent, friend, or relative is not counted as Covered California income. IRS materials also explain that gifts are generally tax-free to the recipient.
IRS Publication 525 |
IRS Gifts FAQ

Examples that usually do NOT count as income

• Cash from parents or grandparents
• A birthday or holiday gift
• Money from a friend to help you out
• A gift used for rent or living expenses
• Proceeds of a real loan

Important exception: income earned from the gift may count

The gift itself may not count, but if that money later earns interest, dividends, or other taxable income, that later income may count toward your MAGI.
IRS Interest |
IRS Dividends

Example

• You receive $15,000 as a gift → not counted as income
• You earn interest on it → that interest may count
• You invest it → dividends/gains may count

How MAGI is calculated

Covered California MAGI generally starts with your federal adjusted gross income and adds certain items back in.
How Covered California MAGI is Calculated

What about loans?

A real loan is generally not income, but it should look like a real loan.

• Put it in writing
• State repayment terms
• Keep records

What if a loan is forgiven?

Forgiven debt can sometimes be taxable, so be careful.
IRS Canceled Debt

Bottom line

For most Covered California situations, the gift itself does not count as income. But income generated from that gift may count.

Quick Gift Income Flow

Did you receive money?

↓

Gift? → Usually NOT income

Loan? → Usually NOT income

Earned income from what you invest the loan proceeds in? → MAY count

Need Help Figuring This Out?

This information is for general educational purposes only and should not be considered tax or legal advice.

Frequently Asked Questions

Does money from my parents count as income for Covered California?

Usually no, if it is truly a gift and not wages or self-employment income. Covered California says gifts do not count as income. Source

“Not sure whether your gift, loan, or transfer counts? Schedule a quick Zoom.”

Does a birthday or holiday gift count?

Usually no. A true gift is generally not counted as income for Covered California. Source

Does borrowed money count as income?

Usually no, if it is a real loan. Covered California says proceeds from loans do not count as income. Source

Does interest earned on gifted money count?

It can. The gift itself may not count, but interest earned later may count as taxable income. Source

Does dividend income from invested gift money count?

It can. Dividends are commonly taxable and may affect MAGI. Source

Can I deduct a gift I gave directly to another person?

Usually no. Gifts to individuals are not deductible. :contentReference[oaicite:6]{index=6}

“Not sure whether your gift, loan, or transfer counts? Schedule a quick Zoom.”

FAQ’s

From IRS Website

Introduction – Gift Income?

• The person who receives a  gift does not have to claim the gift on their income tax, thus gifts don’t count for Covered CA subsidies, or MAGI-Medi-Cal Qualification.
• The giver of the gift  does not have to pay tax on gifts that are less than the annual exclusion limit, which generally changes every year.
  • What is a Gift Tax  Trout Accounting.com 
• Thus, if you don’t have to show the gifts on your 1040, it’s not MAGI income for Covered CA.
• Gift Tax: The Tax Implications of Supporting Adult Children  Tax Act.com 
• We are not attorney’s or tax advisers – double check with your professional adviser or VITA Volunteers Income Tax Assistance.

The following are nontaxable gifts:

• The general rule is that any gift is a NON taxable gift.
• Gifts that do not exceed the annual exclusion for the calendar year,
• Tuition or medical expenses you paid directly to a medical or educational institution for someone,
• Gifts to your spouse
• Gifts to a political organization for its use, and
• Gifts to charities.
  • Trump Big Beautiful Bill  Section 70424 creates a permanent deduction for taxpayers who do not itemize, capped at $1,000 ($2,000 for joint filers). This does not include contributions to donor-advised funds.  –  This allows more people to be able to give.  COF.org *
    • Above-the-line charitable contribution deduction ($1,000/$2,000) with caps on individual and corporate donations.
    • Explanation: Includes an above-the-line charitable contribution deduction, allowing non-itemizing taxpayers to deduct up to $1,000 for individuals and $2,000 for joint filers.
    • Caps the annual tax deduction for individual charitable contributions at $400,000 for single filers and $800,000 for joint filers and limits the tax deduction for corporate charitable contributions to 10% of a corporation’s taxable income, with any excess contributions also eligible for a five-year carryforward.
    • Impact: Encourages charitable giving among lower- and middle-income taxpayers who do not itemize. However, limits on individual and corporate charitable giving could discourage large donations to nonprofits.  NAIFA *
• Annual Exclusion. For 2024, the annual exclusion is $18,000. Most gifts are not subject to the gift tax. For example, there is usually no tax if you make a gift to your spouse or to a charity. If you give a gift to someone else, the gift tax usually does not apply until the value of the gift exceeds the annual exclusion for the year.
• No Tax on Recipient. Generally, the person who receives your gift will not have to pay taxes on it.
• Gifts Not Deductible. Making a gift does not ordinarily affect your taxes. You cannot deduct the value of gifts you make (other than deductible charitable contributions).
• Forgiven Debt and Certain Loans. The gift tax may also apply when you forgive a debt or give a loan that is interest-free or below the market interest rate.
• Gift-Splitting. You and your spouse can give a gift up to $28,000 to a third party without making it a taxable gift. You can consider that one-half of the gift be given by you and one-half by your spouse.
  • Filing Requirement. You must file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, if any of the following apply:
    • You gave gifts to at least one person (other than your spouse) that amount to more   than the annual exclusion for the year.
    • You and your spouse are splitting a gift. This is true even if half of the split gift is less than the annual exclusion.
    • You gave someone (other than your spouse) a gift of a future interest that they can’t actually possess, enjoy, or from which they’ll receive income later.
    • You gave your spouse an interest in property that will terminate due to a future event.
      • Source Publication 559, Survivors, Executors, and Administrators.

Educational and Medical Exclusions

• Payments that you make on someone’s behalf for qualified tuition or medical expenses do not count towards the annual limit for gift tax purposes.
• However, your payment(s) must be made directly to a qualifying educational organization or medical care provider in order to qualify for the exclusion. You can also place funds directly into a 529 education savings plan to avoid the gift tax — but note that certain rules apply.  ^{IRS.com (NOT a government Site!)}

Charitable Contributions

pdf   HTML

FAQ

• Question – How can I transfer property to my children, while I’m alive, without gift and estate taxes or  increasing Property Taxes?
  .
• Answer : Under Proposition 19, 13, 58  your home and other properties… up to $1m can be transferred to your children without increasing property taxes.
  • Adding a family member to the deed as a joint owner for no consideration is considered a gift of 50% of the property’s fair market value for tax purposes. If the value of the gift exceeds the annual exclusion limit ($18,000 for 2024) the donor will need to file a gift tax return (via Form 709) to report the transfer.
  • However, they will not likely owe gift tax due to the unified gift and estate tax exemption, which is $13.61m  for 2024. Additionally, each owner will have to adjust their basis in their respective ownerships interests on the date of the transfer.
    • Learn More
      • Fact Sheet *
      • video *
      • San Francisco Assessor *
      • Gifting Real Estate to Children Attorney *
      • Use a living trust *
      • TRANSFERRING PROPERTY TAX BASE IN CALIFORNIA: EVERYTHING YOU NEED TO KNOW
      • cnb.com gifting-a-house-to-a-child
      • H & R Block
      • smart asset.com/california-gift- and estate tax
      • See our webpage on Estate Taxes.
• Question Will a letter from someone saying they will gift me $X amount by Y [December 31st] if I don’t make [enough] equivalent money [MAGI Income *** Line 37 1040] from my own business to qualify for Covered CA subsidies, rather than MAGI Medi-Cal be sufficient for proof of income?
  • If so, what are the minimum requirements for X and Y?
    .
    .
• Answer First of all, gifts do not count towards MAGI Income as it doesn’t get reported on your 1040. Learn More—- IRS Publication #525 Page 32
  • 2nd the minimum one needs in MAGI Income for 2016 is excess of 138% of Federal Poverty Level. Please use our FREE Quote Engine and play with the numbers to do the calculation. One can also view a chart by clicking here.
  • For a single person, Silver 94 would require xxx  MAGI income. Do NOT rely on this number!!! It all washes out at the end of the year when you file taxes.
  • Get Instant quote & subsidy calculation
  • Appoint us as your Covered CA broker, no extra charge.