The Affordable Care Act defines an individuals income to determine if they are eligible for Advance Premium (subsidy) Tax Credit. The Modified Adjusted Gross Income is the term used by the Internal Revenue Service to determine if a taxpayer is eligible to use certain deductions or credits. “Modified Adjusted Gross Income” (NOT “Adjusted Gross Income”) will be used in determining eligibility under the Federal Poverty Level formula guidelines in calculating the Advanced Premium (subsidy) Tax Credit.
An individual can calculate their Modified Adjusted Gross Income (MAGI) as outlined below:
- Calculate your ANNUAL household GROSS INCOME (line 22 of IRS form 1040) which is the income yu received from wages, interest and basically any income you made through business, trade or investments.
- Calculate your ANNUAL household ADJUSTED GROSS INCOME (line 37 of IRS form 1040). Once you have your gross income, you adjust it by subtracting qualified deductions from the gross income.
- The final step is to calculate your ANNUAL household MODIFIES ADJUSTED GROSS INCOME by adding back certain items to your Adjusted Gross Income including:
- Deductions for IRA contributions
- Deductions for student loan interest or tuition
- Excluded foreigh income
- Interest from EE (employee) savings bonds used to pay higher education expenses
- Employer paid adoption expenses
Advance Premium (subsidy) Tax Credits are available for individuals and/or families who meet certain income requirements and do not have access to affordable health insurance through their employer. Eligibility for Advance Premium (subsidy) Tax Credits is based on a standard, called the “Federal Poverty Level,” that looks at an individuals household income and the number of people in the household. The amount of the Advance Premium (subsidy) Tax Credit is based on a sliding scale with those whose income is less getting a larger financial support to lower the cost of their insurance coverage. Individuals and/or families whose income is between 133 percent and 400 percent of the Federal Poverty Level may be eligible for an Advance Premium (subsidy) Tax Credit. This means that an individual with income up to $47,520 and a family of four earning up to $97,200 may be eligible for a Advance Premium (subsidy) Tax Credit.