Originally published on September 20, 2021. Last updated April 19, 2022. Show
The Affordable Care Act (ACA) offers premium tax credits to help eligible individuals and families purchase individual health insurance coverage through the Health Insurance Marketplace. With the changes made through the American Rescue Plan, no American will ever pay more than 8.5% of their household income for health coverage. If your premium is more than 8.5% of your household income, then you’ll qualify for a premium tax credit to help cover the rest. The “household income” figure here isn’t just what your household makes in a year—it’s based on your “modified adjusted gross income” (MAGI). So how do you figure out what your MAGI actually is? In this article, we’ll go over what MAGI means and how you can calculate yours. What is modified adjusted gross income?In short, your MAGI is simply your adjusted gross income with any tax-exempt interest income and certain deductions added back in. The IRS uses your MAGI in a lot of ways to determine if you’re eligible for certain deductions and credits. Your MAGI determines whether or not you can:
*If your employer offers an HRA, there are special rules in place to coordinate your premium tax credit with your HRA allowance compliantly. Premium tax credits work with the qualified small employer HRA (QSEHRA), but you must report your QSEHRA allowance amount to avoid tax penalties. Premium tax credits don’t work with an individual coverage HRA (ICHRA). If your employer offers you an ICHRA allowance that allows you to purchase a plan that meets affordability criteria on the ACA marketplace or your state exchange, you lose your premium tax credits—even if you opt out of the ICHRA. Watch our video to learn more about how HRAs and premium tax credits work together How do I calculate my modified adjusted gross income?Calculating your MAGI is an important step in determining if you qualify for a premium tax credit and other deductions. Here's a quick overview of how to calculate your modified adjusted gross income:
Let’s go over each step in more detail. Step 1: Calculate your gross incomeYour gross income (GI) is the simplest form of income. It includes all the money you earned without any tax deductions figured in. Your GI can come from a lot of places, including income you earned through:
Rather than doing the math yourself, you can find your GI on line 7b of IRS form 1040. Your GI will serve as the basis for your adjusted gross income (AGI) calculation, which we’ll cover in the next section. Step 2: Calculate your adjusted gross incomeOnce you have gross income, you "adjust" it to calculate your AGI by subtracting qualified deductions from your gross income. Adjustments can include items like:
Again, you’re welcome to whip out your calculator and make these subtractions yourself, but you can also find your AGI on line 8b of IRS form 1040. Step 3. Calculate your modified adjusted gross incomeNow that you’ve figured out your AGI, you’re finally ready to calculate your modified adjusted gross income. The IRS phases out credits (including premium tax credits) and deductions as your income increases. So by adding these factors back to your AGI, the IRS determines how much you really earned, giving you your MAGI. According to Internal Revenue Code ((d)(2)(B)), you should add the following to your AGI to determine your MAGI:
If this looks confusing, the good news is that most people don’t have any of the income described above, so it’s likely your MAGI is the same as your AGI. ConclusionOnce you know your MAGI, you can shop the ACA marketplace or your state exchange for your own individual health insurance plan. These sites will simply ask for your MAGI and household size, then calculate any tax credits you may qualify for. By following the steps in this article, you’ll have everything you need to know about your income and how it influences your health insurance premiums. This article was originally published on September 22, 2020. It was last updated September 20, 2021. Originally published on September 20, 2021. Last updated April 19, 2022. Share: How do you calculate Irmaa?Your 2022 IRMAA amount is determined by your reported income in 2020. The income used to calculate the Medicare IRMAA is taken from your Modified Adjusted Gross Income (MAGI) – which is your total adjusted gross income plus any tax-exempt interest – from two years prior.
Is Social Security income included in adjusted gross income?MAGI is adjusted gross income (AGI), determined in the same way as for personal income taxes, plus three types of income that AGI omits: excluded foreign income, tax-exempt interest, and the non-taxable portion of Social Security benefits.
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