Covered California and ACA related questions from consumers, employers and agents are answered by Phil Daigle with the best information available at the time. Archived entries may no longer be accurate as the ACA and Covered California knowledge-base is evolving quickly. TO REQUEST A PERSONAL RESPONSE INCLUDE EMAIL ADDRESS.

What is MAGI?

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Question: Why is my eligibility for a subsidy for Obamacare based on 2012 income instead of 2013 and what if my income is lower in 2014? Also does an early IRA distribution count as income affecting my 2014 health care subsidy?

Answer: I’ve had many questions having to do with just how Covered California will use the adjusted gross income (AGI) from an applicant’s tax return. I think that, primarily, people want to know how much flexibility will be shown beyond the AGI number. Actually, the exchange has always referred to eligibility based on MAGI for Modified Adjusted Gross Income, but we didn’t know how the AGI would be modified.

We got a good indication of that last week when the feds released a demo version of the marketplace online application. Because the application is connected to a hub including IRS data, the applicant’s AGI from his last federal income tax return in is already displayed in the application, but it only serves as a reference point to help determine his or her estimated income for the year in which he wants insurance coverage. In some cases the MAGI could be very different from the AGI, for example if the applicant became unemployed or underemployed since his or her last tax return.

Question: Why is my eligibility for a subsidy for Obamacare based on 2012 income instead of 2013 and what if my income is lower in 2014? Also does an early IRA distribution count as income affecting my 2014 health care subsidy?

Answer: I’ve had many questions having to do with just how Covered California will use the adjusted gross income (AGI) from an applicant’s tax return. I think that, primarily, people want to know how much flexibility will be shown beyond the AGI number. We got a good indication of that last week when the feds released a demo version of the marketplace online application.

7 Comments

This is pretty much the final draft (9/18/14) of IRS Form 862, which you or your accountant will complete when you file your 2014 taxes. Go right to Page 4, “Taxpayer’s MAGI Worksheet. Here’s the link “http://www.cahba.com/PDF/IRS%208962.pdf”

MAGI isn’t new, so it’s probably already in its final state of definition. It looks like the latest updates from IRS are from 2004.

Check out this MAGI calculator from IRS:

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Passive-Activity-Loss-ATG-Exhibit-2-2-Modified-Adjusted-Gross-Income-Computation

Check this explanation from TurboTax:

https://turbotax.intuit.com/tax-tools/tax-tips/IRS-Tax-Return/What-Is-the-Difference-Between-AGI-and-MAGI-on-Your-Taxes-/INF22699.html

MAGI calculation To calculate your modified adjusted gross income, take your AGI and add back certain deductions. Many of these deductions are rare, so it’s possible your AGI and MAGI can be identical. According to the IRS, your MAGI is your AGI with the addition of the following deductions, if applicable:

Student loan interest One-half of self-employment tax Qualified tuition expenses Tuition and fees deduction Passive loss or passive income IRA contributions, taxable social security payments The exclusion for income from U.S. savings bonds The exclusion under 137 for adoption expenses Rental losses Any overall loss from a publicly traded partnership

Has the IRS finalized exactly how MAGI will be calculated for Obamacare application?

Please explain Modified Adjusted Gross Income and how we as consumers calculate this number. Explain ways to tax shelter the money if the income is too high to qualify for subsidies?

Yes, 2014 is the only income that will count when taxes are filed. But income estimates from prior tax years are used to help calculate the monthly subsidies to be paid to the insurance company in the current year, before that year’s taxes are filed. It has been stated already that these estimates can be modified if you know that your income is going to be substantially different from that of a prior year.

So when you file your federal tax return for 2014, the amount of the monthly subsidy is reconciled with your actual income for the year. If your income was lower than expected, your subsidy can be adjusted up through a tax credit. If your income proved higher than expected, you would repay part or all of the subsidy through a higher tax liability.

Re: Rick’s comment above; So what year applies in determining if an applicant is eligible for a subsidy ? It would seem that the starting point of 2012 makes sense since that’s the most recent year that filed returns are available. But what does 2013 have to do with anything since the program starts in 2014 and the only income that should count should be that which is earned in 2014?

I believe the direct answer to the question: “Why will the online application process consider 2012 income in estimating MAGI for 2014 enrollment?” It is most likely because the link to the IRS hub looks at the MAGI from the most-recently-filed tax year. Assuming that one applies during the 2013 open enrollment period in the months of Oct-Dec (for plan year 2014), the 2012 tax year is the most recent tax year available for display from the IRS hub (since 2013 taxes won’t be filed until 2014 — well after the normal open enrollment period for 2013 has completed.)

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