Before writing this post, I had no idea how to calculate my “Modified Adjusted Gross Income” (MAGI). But I did know that this is the number the IRS will use when deciding whether people purchasing their own insurance in their state’s online marketplace (a.k.a. Exchange) will qualify for a tax credit to help them cover their premiums.
This piqued my interest.
The first thing you need to know is that there are different definitions of Modified Adjusted Gross Income (MAGI) for different situations. The the Affordable Care Act has its own definition to be used when determining whether someone is eligible government subsidies (premium tax credits) when purchasing his own insurance in the state Exchanges.
When calculating your MAGI, you can subtract certain items from your adjusted gross income including: student loan interest, certain moving expenses,, some self-employment expenses, and any alimony that you pay.
As a result, an individual grossing $50,000 (or a family of four with income of $98,000) might well discover that after they deduct these items from, their MAGI falls under the cut-off for subsidies ($45,960 for an individual, $62,040 for a couple, $78,120, for a family of three, $94, 200 for a family of four)
This is why, even if think you earn a few thousand too much to qualify for government help, you should ask whoever prepares your taxes about your MAGI.
Kiplinger’s Kimberly Lankford, suggests other ways to lower your MAGI by “selling losing stocks or boosting business expenses to offset self-employment income.” But, she warns, “Be careful with moves that could boost that your MAGI and make it more difficult to qualify for the subsidy — such as converting a traditional IRA to a Roth.” .
Clearly MAGI is a tricky number. The good news is that you don’t have to do the arithmetic yourself. Your Exchange will do it for you when you apply. j(Ultimately, the IRS does the calculation).