8. Monthly Income and Average Monthly Income for Seasonal Workers

Under section 1902(xx)(2)(F) of the Act, an applicable individual demonstrates community engagement for a month if “the individual has a monthly income that is not less than the applicable minimum wage requirement under section 6 of the Fair Labor Standards Act of 1938 (FLSA), multiplied by 80 hours.” We implement this provision at new § 435.552(f)(1). In 2026, the Federal minimum wage is $7.25 per hour, [ 41 ] which multiplied by 80 equals $580. We interpret the “applicable” minimum wage to mean the Federal minimum wage under section 6 of the FLSA ( 29 U.S.C. 206(a)(1)(C) ) that is in effect at the time a State applies the monthly income threshold to assess compliance with the community engagement requirement in case of future amendments to section 6 of the FLSA. As discussed further below, we do not use alternative minimum wage amounts in the FLSA for the purpose of identifying the monthly income threshold for demonstrating compliance with the community engagement requirement. Under section 3(m) of the FLSA, [ 42 ] employers may pay certain “tipped employee[s]” a lower wage, provided the wage plus earned tips is at least equal to the minimum wage under section 6 of such Act. This provision is outside of section 6 of the FLSA, and thus States may not use a tipped wage (regardless of the industry or type of work) to identify the income threshold for demonstrating community engagement based on monthly income.

Another lower wage that is in section 6(g) of the FLSA is a minimum wage of $4.25 per hour for individuals under age 20 who are in their first 90 consecutive calendar days of employment, which could be relevant to a 19-year-old applicable individual. However, to the extent that employers avail themselves of this lower introductory wage, we believe it would be extremely difficult in practice for a State Medicaid agency to identify to whom this lower wage requirement would apply and to adjust the monthly income threshold only for those individuals. Moreover, this lower introductory wage is temporary—for only the first 90 calendar days of employment—making it even less likely that a State will encounter an affected individual at the point of evaluating compliance with community engagement. Therefore, for simplicity of administration of this provision, we interpret the Federal minimum wage to be the single, general minimum wage at section 6(a)(1)(C) of the FLSA for all applicable individuals. In addition, as discussed in section II.I.6. of this IFC, States must first attempt to verify community engagement on an ex parte basis, including hours worked, regardless of the existence of a lower introductory wage in a State.

We further recognize that individual States may have a generally applicable State minimum wage that is higher than the Federal minimum wage (or in limited circumstances lower or no minimum wage). Because section 1902(xx)(2)(F) of the Act references only section 6 of the FLSA (that is, the Federal minimum wage) and does not provide for the use of alternative State minimum wages, States may not use such State-specific minimum wages in place of the applicable Federal minimum wage to calculate the monthly income threshold for individuals to demonstrate compliance with community engagement under § 435.552(f)(1).

Under section 1902(xx)(2)(G) of the Act, an applicable individual demonstrates compliance with community engagement for a month if the individual is a seasonal worker as described in section 45R(d)(5)(B) of the Code and has an average monthly income over the preceding 6 months that is not less than the applicable ( printed page 33361) Federal minimum wage requirement under section 6 of the FLSA multiplied by 80 hours. Section 45R(d)(5)(B) of the Code defines a seasonal worker as a worker who performs labor or services on a seasonal basis as defined by the Secretary of Labor, including workers whose “employment pertains to or is of the kind exclusively performed at certain seasons or periods of the year and which, from its nature, may not be continuous or carried on throughout the year” ( 29 CFR 500.20(s)(1) ) and retail workers employed exclusively during holiday seasons. We implement these provisions at new § 435.552(g)(1) and (2). As with monthly income under § 435.552(f), States must use the Federal minimum wage in making this calculation.

The statute at section 1902(xx)(2)(F) and (G) of the Act refers to an individual's “monthly income” and “average monthly income,” but does not further define how States should calculate monthly income for these purposes. For the calculation of an applicable individual's monthly income under new § 435.552(f) and average monthly income under new § 435.552(g), we define “monthly income” to be the same as the individual's household income used for financial eligibility for Medicaid. Most applicable individuals are eligible for or enrolled in the adult group under § 435.119, which is a group that has an income standard based on MAGI using the MAGI-based methodologies at § 435.603. Similarly, most section 1115 demonstrations that have applicable individuals (as discussed in section II.B. of this IFC) have an income standard based on MAGI and use MAGI-based methodologies for the relevant demonstration population.

We considered using different interpretations of “monthly income” for the calculation. For example, we considered counting only earned income because it could align with the other work-related ways to demonstrate compliance. However, using only earned income for this purpose would be inconsistent with how “income” is defined elsewhere in the Medicaid statute. Specifically, section 1902(e)(14)(A) of the Act dictates that “[n]otwithstanding. . .any other provision of this title, except as provided in subparagraph (D), for purposes of determining income eligibility for medical assistance under the State plan or under any waiver of such plan and for any other purpose applicable under the plan or waiver for which a determination of income is required . . . , a State shall use the modified adjusted gross income of an individual and, in the case of an individual in a family greater than one, the household income of such family.” (Emphasis added.) Section 1902(e)(14)(D) of the Act, which lists the exceptions to the mandatory use of MAGI-based household income, does not include an exception relating to the determination of income for applicable individuals for the purposes of assessing community engagement. Additionally, neither section 1902(xx) of the Act nor section 71119 of the WFTC legislation specifies that section 1902(xx) supersedes section 1902(e)(14) of the Act, nor does section 1902(xx) of the Act contain its own definition of “monthly income” or mandate that a particular methodology be used to calculate “monthly income.” Nothing in section 1902(xx) of the Act or section 71119 of the WFTC legislation suggests that section 1902(e)(14) of the Act should not apply when determining income for purposes of section 1902(xx).

Under new § 435.552(f)(2) and (g)(3), we establish that States must use the MAGI-based methodologies at § 435.603 when making income determinations for demonstrating community engagement. A contrary reading of the statute would require that States, after determining an individual income-eligible for the adult group, apply a separate and distinct income determination for such individuals in evaluating their demonstration of community engagement. There is no indication in section 1902(xx)(2) of the Act or elsewhere that the MAGI-based income provisions of section 1902(e)(14)(A) of the Act should not apply to the calculations under section 1902(xx)(2)(F) and (G) of the Act. Therefore, under § 435.552, we are interpreting section 1902(xx)(2)(F) and (G) of the Act in a manner that is consistent with section 1902(e)(14) of the Act. We specify that States must use the individual's MAGI-based income as defined at § 435.603 in assessing an individual's monthly income for the purpose of determining if an individual demonstrates community engagement under § 435.552(f) or (g).

The use of MAGI-based methodologies is required under § 435.552(f) and (g) for all applicable individuals, including those whose eligibility or enrollment is under a section 1115 demonstration rather than the State plan. Even if a State does not have an income test or uses a non-MAGI methodology for determining financial eligibility for a population of applicable individuals eligible only under section 1115 demonstration authority, we nevertheless require States to use MAGI-based methodologies for the purpose of determining income under § 435.552(f) and (g). We believe that establishing a uniform methodology is necessary for the consistent and fair treatment of all applicable individuals across States, regardless of whether they are eligible for or enrolled in the State plan or a section 1115 demonstration. We recognize that requiring the use of MAGI-based methodologies for section 1115 demonstration populations that do not use such methodologies for underlying financial eligibility could present an administrative burden for affected States. However, sections 1902(xx)(2)(F) and (G) of the Act require income counting, and we believe any additional State burden from using MAGI-based methodologies in these situations is outweighed by the benefits of requiring consistent methodologies within and across States, rather than creating different methodologies to count income for the community engagement requirement for each of the implicated section 1115 demonstrations.

Thus, States must use the individual's MAGI-based income, as defined under § 435.603(e), for their MAGI-based household as defined under § 435.603(d) and (f), for purposes of § 435.552(f) and (g). The countable income under § 435.603(e) generally includes earned income as well as countable unearned income, meaning that States must take into account all of this income for purposes of § 435.552(f) and (g). Under § 435.603(d) and (f), household income is the total income of everyone in the individual's household. Although sections 1902(xx)(2)(F) and (G) of the Act refer to the income of “the individual,” all Medicaid applicants and beneficiaries have their eligibility determined on an individual basis, and, under § 435.603(d), States must determine individuals' Medicaid financial eligibility using household income, which includes the income of every individual included in the individual's household.

Finally, under § 435.603(h), Medicaid financial eligibility is generally based on the current month at the point when eligibility for Medicaid is being determined, with certain options available to States (including the use of a reasonably predictable changes methodology under § 435.603(h)(3), as discussed further in this IFC). For the purposes of demonstrating community engagement under § 435.552(f) and (g), we decided to apply the requirement to use “current monthly household income and family size” in § 435.603(h) to the month that the State is evaluating for the purpose of community engagement, rather than to the month of application or renewal. That is, States generally ( printed page 33362) must evaluate the monthly income for the month or months of the review period, as defined in section II.H. of this IFC, to determine whether an applicable individual is demonstrating community engagement in that month. We believe this is the most appropriate and logical application of the income counting methodology for States to use for the community engagement requirement. We implement this requirement at § 435.552(f)(2) and (g)(2).

As a general example, if the State conducts financial eligibility for an applicant and determines that the individual appears to be an applicable individual eligible for the State plan adult group and has a monthly household MAGI-based income of $650 (which is verified through information available to the State) in the required number of months of the review period, as defined in section II.H. of this IFC, then the State would use the verified $650 income, which is greater than $580 (applicable Federal minimum wage multiplied by 80), to determine that the individual demonstrated community engagement under § 435.552(f).

In addition, our intent is for States to use data sources and programming logic readily available to them rather than create new methodologies and systems specific to community engagement. We believe it will be more efficient for States to implement calculations based on existing methodologies, rather than applying one income methodology for determining financial eligibility and a different methodology to determine monthly or average monthly income as a condition of eligibility under community engagement.

We have received questions regarding States' options when averaging seasonal workers' monthly income under section 1902(xx)(2)(G) of the Act. States have an existing option to use a “reasonably predictable changes” methodology when using MAGI-based methodologies to determine household income, which, as discussed earlier in this section of this IFC, is the income used for demonstrating compliance under § 435.552(f) and (g). Specifically, § 435.603(h)(3) permits States to adopt (through a State plan election) a reasonable method to account for reasonably predictable increases or decreases (or both) in future income to determine monthly income. This option can help make income determinations for applicants and beneficiaries more accurate over a period of time and is particularly useful for averaging seasonal worker income over a period of up to 12 months. A reasonably predictable changes methodology takes predictable future changes into account by including a prorated portion of reasonably predictable future income in the individual's monthly income to smooth out predictable fluctuations in income.

For example, suppose an individual in a State with a 12-month reasonably predictable changes in income methodology expects to have steady monthly income of $500 and expects (based on the previous year) to have $400 per month in additional countable income in the months of October through December, for a total of $1,200 of additional countable income. Suppose further that the State is determining monthly income for August for the purpose of the community engagement requirement. The State prorates the total seasonal income to equal $100 ($1,200/12 = $100) in additional monthly income for August (and in each of the 12 months). The monthly income is determined to be $600 ($500 steady income plus $100 prorated seasonal income). Note that because the State uses a 12-month methodology, this calculation would be the same in any month of the year. Thus, while the prorated amount is based on expected future income, the methodology is used to determine the monthly income for each month in that 12-month period, including the month(s) of the review period (as defined in section II.H. of this IFC) the State is assessing to determine community engagement compliance. Such a reasonably predictable changes methodology, in States that elect it, is an integral part of their MAGI-based methodologies, and therefore States must use their reasonably predictable changes methodology to determine monthly income when an individual has fluctuating income that is subject to the State's methodology.

For the purpose of the community engagement requirement, States with a MAGI-based reasonably predictable changes methodology for seasonal workers include a prorated portion of reasonably predictable future income in monthly income added to stable or non-fluctuating income (if any), and this total average monthly income will effectively be the monthly income used to assess community engagement under section 1902(xx)(2)(G) of the Act. As another example, consider an individual who is employed from April through September, earning $1,500 per month, and unemployed with no income for the remaining 6 months of the year. If the individual applies for Medicaid in December, and the State has elected reasonably predictable increases and decreases in income over 12 months, the State will use the prorated MAGI-based monthly income to determine financial eligibility and also to determine compliance with the community engagement requirement. In this case, the individual's calculated monthly income is $750 ($1,500 multiplied by 6, then divided by 12) in December for financial eligibility and $750 in November (or in the months of the relevant review period, as defined in section II.H. of this IFC) for demonstrating community engagement. The average monthly income over the previous 6 months would also be $750. Alternatively, if the individual applies in July when earning income, and the other facts were the same (including that the State takes into consideration reasonably predictable future decreases in income), the outcome would still be a calculated monthly income of $750 for financial eligibility and for demonstrating community engagement using average monthly income.

Most States currently elect the option to use a reasonable method to account for reasonably predictable changes, and among those States, most elect both reasonably predictable increases and decreases in future income. Some States only account for reasonably predictable future decreases. Because accounting only for reasonably predictable future decreases generally decreases countable household income, it may result in some seasonal workers not reaching the $580 per month (Federal minimum wage multiplied by 80) threshold under section 1902(xx)(2)(G) of the Act. We further note that a MAGI-based reasonably predictable changes methodology applies broadly to all MAGI-based eligibility determinations, including for the adult group and applicable section 1115 demonstrations, and must be used consistently and in the same manner for financial eligibility and for compliance with the community engagement requirement for applicable individuals.

If a State does not use a reasonably predictable changes methodology, then for the purpose of demonstrating community engagement for seasonal workers, the State would use the individual's average income over the preceding 6 months, as provided at section 1902(xx)(2)(G) of the Act. The “preceding 6 months” verified by the State would be the 6 months preceding a month of the review period for which the State is assessing compliance with the community engagement requirement. Consider the facts of the previous example, except that the State does not elect a reasonably predictable changes methodology, and the State requires an applicable individual to demonstrate community engagement for ( printed page 33363) 1 month at application. The seasonal worker applies in July and is an applicable individual, so the relevant review period to demonstrate community engagement is the month of June. The State will average the income from December through May to determine if the individual demonstrates community engagement in June, the month before application. In this case, the individual has 2 months of seasonal employment, which averaged over 6 months equals $500 (2 months at $1,500 per month, then divided by 6). Because $500 is below $580, this individual is not considered to be demonstrating community engagement in June based on the 6-month average monthly income for seasonal workers. This outcome contrasts with the prior example using an income counting methodology that accounts for reasonably predictable changes.

Similarly, at renewal, the State will average the income for the 6 months preceding the month being assessed for compliance. Thus, if a seasonal worker who is an applicable individual has a review period that spans from July through December, the average income from January to June is used to assess compliance in July, from February to July to assess compliance in August, from March to August to assess compliance in September, etc. The State will continue assessing each month in the review period until the State either verifies compliance for the required number of months (including verifying if the applicable individual demonstrated community engagement on a different basis, that is, through an activity or combination of activities, or is deemed to have demonstrated community engagement because of an exception) or has assessed all the months in the review period.

We have also received several questions regarding situations in which an individual's monthly income falls short of the amount required to meet the community engagement requirement under the monthly or average monthly income criteria. For example, we have been asked whether, if the State verifies $380 in monthly income for the individual (which is short of the $580/month requirements at § 435.552(f) and (g) assuming a minimum wage of $7.25/hour), the State could use that income towards meeting an individual's community engagement requirement. Section 1902(xx)(2) of the Act does not address this scenario but does provide the Secretary with the authority to establish criteria for determining whether an applicable individual meets the conditions for demonstrating community engagement. Section 1902(xx)(2)(A) of the Act includes work as a community engagement activity. Consistent with our statutory authority to establish the criteria for demonstrating community engagement, at new § 435.552(e)(2)(i) and (ii) we permit income to be used as a proxy for calculating work hours because many income verification data sources, such as quarterly wage data, include individual earned income and thus can be used to derive the number of hours worked under § 435.552(a)(1). If the individual's verified income is below the Federal minimum wage multiplied by 80 hours, and if the State does not have information regarding the number of hours worked, then it would be reasonable for States to have the option to use income to calculate a number of hours worked by dividing the income for the month by the applicable Federal minimum wage. Thus, if the State verifies $380 in monthly income, then using the current Federal minimum wage of $7.25, the individual can be credited with having worked 52 hours for the month ($380 divided by $7.25). The individual would then need to participate in an additional 28 hours (80−52 = 28) of community engagement activities to meet the requirement for the month.

We recognize that States will be using the individual's MAGI-based income for their MAGI-based household when converting monthly income to hours worked. While we are providing States with the option to use income to determine hours worked, this option must only be used when the monthly income is less than the applicable Federal minimum wage multiplied by 80 hours and the State does not have information regarding the number of hours worked. In these circumstances, the State must use a reasonable method to allocate hours, between members of the household. Providing States flexibility to convert monthly income to hours worked for purposes of calculating an applicable individual's work hours is reasonable because the concept underlying the monthly income and average monthly income criteria at sections 1902(xx)(2)(F) and (G) of the Act is that monthly income can be a proxy for hours worked. We do not see a basis for prohibiting States from using a similar methodology to determine hours worked if an individual has monthly income below the amount that equates to 80 hours at minimum wage, the State has no documentation regarding number of hours worked and uses a reasonable methodology to allocate hours, as necessary. Additionally, some States already use monthly income to determine self-employment work hours when verifying compliance with SNAP work requirements. We reiterate that when this proxy approach results in the work hours calculated as less than 80, those hours would then have to be combined with hours from another activity to meet the community engagement requirement.

Please see section II.I.6.f. of this IFC for information about verification of the monthly income and average monthly income requirements.