ACA MAGI not MAGI?

[AdrianC]

Am I right in thinking the MAGI used for ACA premium tax credits is not that same as the usual IRS defined MAGI?

I've been adding back half of self employment tax to AGI to get MAGI. Now I'm not sure if that's correct. Anyone know?

[TheContinentalOp]

This is a question I have neen researching (FIRE DATE March 2020)

This looks to be a good answer:

https://www.zanebenefits.com/blog/how-to-calculate-modified-adjusted-gross-income-magi

What Is Adjusted Gross Income?
Generally, your adjusted gross income is your household's income minus various adjustments. Adjusted gross income is calculated before the itemized or standard deductions, exemptions, and credits are taken into account.

What Is Modified Adjusted Gross Income?
Generally, your modified adjusted gross income (MAGI) is the total of your household's adjusted gross income plus any tax-exempt interest income you may have (these are the amounts on lines 37 and 8b of IRS from 1040).

How to Calculate Your Gross Income
Your gross income (GI) is the money you earned through wages, interests, dividends, rental and royalty income, capital gains, business income, farm income, unemployment, and alimony. This is the basis for your AGI calculation.

Gross income includes salary, interest earned, income from investments, and basically any income you made through business, trade, or investments.

How to Calculate Your Adjusted Gross Income
Once you have gross income, you "adjust" it to calculate your AGI. You make adjustments by subtracting qualified deductions from your gross income.

Adjustments can include items like some contributions to IRAs, moving expenses, alimony paid, self-employment taxes, and student loan interest. There are many free AGI calculators available online.

How to Calculate Your Modified Adjusted Gross Income
Once you have adjusted gross income, you "modify" it to calculate your MAGI. For most people, MAGI is the same as AGI.

Specifically, Internal Revenue Code ((d)(2)(B)) states that MAGI is AGI increased by:

Any amount excluded from gross income in section 911 (Foreign earned income and housing costs for qualified individuals)

Any amount of interest received or accrued by the taxpayer during the taxable year which is exempt from tax

Any amount equal to the portion of the taxpayer’s social security benefits (as defined in Section 86 (d)) which is not included in gross income under section 86 for the taxable year. (Any amount received by the taxpayer by reason of entitlement to a monthly benefit under title II of the Social Security Act, or a tier 1 railroad retirement benefit.)

The IRS phases out credits (including premium tax credits) and deductions as your income increases. By adding MAGI factors back to your AGI, the IRS determines how much you really earned.

Based on that, it determines whether you can take full advantage of premium tax credits. If you are eligible for a tax credit, an online premium tax credit calculator will help you estimate your actual tax credit.

This is from 2014, so I am not sure if the latest tax bill has chnaged things.

[GillyMack]

Thank you both (for the question and the answer). I was struggling with this last night and wasn’t able to find a clear answer. Maybe the whole U.S. doesn’t try to optimize for the ACA.

[Acastus]

Yes, ACA MAGI has a slightly different list of income sources and deductions than the standard MAGI. I think EITC is also different than either. EITC also limits investment income.

[MDM]

Am I right in thinking the MAGI used for ACA premium tax credits is not that same as the usual IRS defined MAGI?

Yes.  The term "MAGI" is applied to several different Modifications of AGI.  Besides the ACA MAGI, there are MAGIs for tIRA deductions, Roth IRA contributions, student loan interest, and probably others.

[AdrianC]

Thanks everybody.

So yes, there are different definitions of MAGI.

For the ACA MAGI we can deduct the deductible part of self-employment tax, 401k, tIRA, HSA and health insurance cost. That's good.

[Laserjet3051]

Just refer to the IRS worksheet on calculating MAGI for the PTC. It is explicit in exactly what things get added back to AGI to make it MAGI. With the PTC cliff being as steep as it is, one dare not err in this calculation. As the cost of healthcare goes up, the PTC value skyrockets year after year so be sure to keep MAGI<400% FPL.

[AdrianC]

Just refer to the IRS worksheet on calculating MAGI for the PTC. It is explicit in exactly what things get added back to AGI to make it MAGI. With the PTC cliff being as steep as it is, one dare not err in this calculation. As the cost of healthcare goes up, the PTC value skyrockets year after year so be sure to keep MAGI<400% FPL.

Yes, I got the IRS form and ran through it. If I had understood the ACA MAGI correctly I could have kept our income low enough to get a small PTC in 2017. No matter. More important for 2018 after our insurance went up so much.

[GillyMack]

Just to make it easy, you want the instructions for IRS Form 8962.  19 pages, accckkk. But thanks to you folks, I have all the info I need now.  I love this forum.  I’m surprised DH doesn’t roll his eyes when I talk it up. He’s amazingly polite.

This is the first year we’re trying to make the subsidy cutoff and perhaps take money out of our 401ks. (We’re over 59 1/2 hooray!) Boy is it hair-trigger. Suppose you take out too much 401k money and had unexpected interest income or something. Once the tax year is over, you can’t fix that, right? If you have some earned income you might be able to shove some into an IRA early the next year before filing taxes, but that might not be possible or enough. I guess I’ll have to leave a margin.