How to calculate modified adjusted gross income

Modified Adjusted Gross Income (MAGI) is essential when determining your eligibility for certain tax benefits and credit programs. MAGI calculates your income tax liability and determines your eligibility for certain tax credits and deductions, such as the Earned Income Tax Credit (EITC) and the Child Tax Credit. 

In this article, we will explain how to calculate your MAGI, find your adjusted gross income (AGI), and introduce you to a MAGI calculator that can help make the process easier.

Why is it important?

To determine if you qualify for premium tax credit or low or no-cost health insurance, you must determine your income

Your MAGI is the total of your household’s Adjusted Gross Income (AGI) plus any tax-exempt interest income you may have such as untaxed foreign income and non-taxable Social Security benefits. Moreover, your MAGI is used to determine eligibility for premium tax credits and other savings for Marketplace health insurance plans and for Medicaid and the Children’s Health Insurance Program (CHIP) as well. 

When planning for retirement, it’s important to consider contributing to a Roth IRA in order to take advantage of the tax benefits and lower your taxable income while also looking into other retirement plans.

Calculating Modified Adjusted Gross Income:

Adjusted Gross Income (AGI) Calculation

The first step in calculating your MAGI is to determine your adjusted gross income (AGI). AGI is your total income (from all sources) minus certain adjustments or deductions. These adjustments include things like contributions to certain retirement accounts and student loan interest. To find your AGI, you can refer to your tax return, specifically line 7 on the Form 1040 for the tax year.

Gross Income (GI) Calculation

Your gross income is the sum of all the money you earn through interest, dividends, wages, business income, capital gains, rental and royalty income, farm income, unemployment, and alimony. Moreover, this typically includes salary, income from investments, interest earned, and simply any income you made through business, trade, or investments.

The easiest way to find your adjusted gross income (AGI) is to refer to your tax return from the previous year. Your AGI can be found on line 7 of the Form 1040. If you are unable to access your previous tax return, you can also find your AGI by using the IRS’s online tools.

Modified Adjusted Gross Income (MAGI) Calculation
Once you have your AGI, you can calculate your MAGI by adding back in certain deductions that were previously subtracted from your AGI. These include deductions for foreign earned income, deductions for certain student loan interest, and deductions for certain business expenses. The MAGI calculation is AGI + certain deductions.

In essence, You can use adjusted gross income as a rough estimate in checking if you are eligible for premium tax credit. If you are self-employed or you own a business, use your net income.

MAGI Calculator

If you are unsure about how to calculate your MAGI, you can use an online MAGI calculator. These calculators can be found on various websites and can help you determine your MAGI quickly and easily. Simply enter your income and deductions, and the calculator will do the rest.

Need to file federal income tax return to get premium tax credit?

Do You Qualify For A Premium Tax Credit

The answer: YES. You must file your taxes every year to maintain eligibility for Advanced Premium Tax Credit (APTC) for your marketplace plan. If APTC was applied on your behalf or someone in your household and you do not file a tax return, you will not be eligible for APTC in the following year, and will have to pay the full cost of your health coverage

FACT: We all know that filing taxes is very important because you can qualify for several tax credits and tax deductions which can help reduce your tax liability or increase your tax refund. Filing your tax return can also help you in certain scenarios, like applying for a loan or for government benefits, where a copy of your most recent tax return(s) is often required. It can prevent you from facing penalties and interest fees owed to the IRS.

Bonus: You can file online for free using TurboTax or MyFreeTaxes. Need more help?
You can have someone help you. Check here to find a free tax preparation site near you to have your taxes done at no cost by an IRS-certified volunteer.

What happens if your household income changes during the year?

Premium tax credits depend on the estimated household income that you indicate on your Marketplace application. Due to this, if your income changes, your premium tax credit will probably change too. This is also true if you add or lose members in your household.

Reporting income and household changes to the Marketplace as soon as possible is very important. If you benefit from a premium tax credit, it is important to report any life changes to the Marketplace as they happen throughout the year. These changes can alter your tax refund or cause you to owe tax. Reporting these changes promptly will help you get the proper type and amount of financial assistance, and prevent you from paying additional taxes if your income goes up or you lose a member of your household. In this case, you’ll probably qualify for a lower premium tax credit. And if your income goes down or you gain a household member, you’ll probably qualify for a bigger premium tax credit.

Always remember:

There is a process called “reconciling” in which you may have to pay money back when you file your federal income tax return. This is if you’ve taken more advance payments of the premium tax credit than you’re eligible for.

How financial assistance or premium tax credit work?

Here is an example…

With a yearly household income range of $36,576 to $79,500, the children in a family of four will likely qualify for no-cost coverage through Oregon Health Plan or Medicaid. The adults in the household will likely qualify for tax credits and lower out-of- pocket costs to lower the cost of private health insurance.

So, let’s say a family of 4 has a household income of $45,000 and between the husband and wife they qualify for a tax credit of $599 per month to lower the cost of their premium. Both children under 18 qualify for Medicaid, which is offered through the state at no cost. Both husband and wife can choose to enroll in any health plan of their choice through the Health Insurance Marketplace. Whether that’s a bronze plan – which offers the lowest premium but highest maximum out of pocket – or a silver plan that allows them to also qualify for cost sharing reduction on out of pocket costs.

Let’s say they enroll in a Kaiser Silver Plan. The actual monthly premium is $796 for both of them. So, if they want to apply their tax credit of $599, their net premium would be $197/month for both husband and wife.

Tax credits are based on income, household size and other factors outlined below.

Factors that influence your healthcare premium:

  • Age
    Healthcare premium for older people are usually 3x higher than for younger ones since older people are more prone to have medical needs. This means that young and healthy people are most likely to get lower health insurance premiums.
  • Location
    Premiums also differ on each state depending on competition, state law and the area’s cost of living. Luckily, if you are in Oregon, Washington, Texas, Nevada and Arizona, we can provide you with any insurance assistance you need, at no cost to you.
  • Tobacco Use
    If you are a smoker, you are most likely to be charged 50% more for your health insurance premium, as smoking is considered as one of the highest health risks.
  • Plan Category
    There are 3 plan categories: Bronze, Silver and Gold. These categories dictate how much you will pay for premiums and out-of-pocket costs. Bronze plans usually have lower monthly premiums and higher out-of-pocket costs when you get care. Gold plans usually have the highest premiums and lowest out-of-pocket costs. Silver plans balance premium and out of pocket costs.

Now that you are done checking on factors that influence your health insurance costs, let’s find out what plan category provides more help in paying for your health care costs.


Cost Sharing Reduction

Cost Sharing Reductions – forms of federal subsidy given out as discounts that help reduce out-of-pocket costs for health-care expenses — including deductibles, copayments and coinsurance. This can only be obtained with a Silver-level plan and is for individuals and families with incomes between 100 percent and 250 percent of the FPL (federal poverty level).

How cost sharing reductions work to make plans more affordable?

  • It can lower your deductible.
    This is the amount you pay “out-of-pocket” before your insurance starts paying for your healthcare expenses. Let us say you have $600 deductible. After you have spent $600 on your medical expenses, this is the point when your insurance starts paying a portion of or all of your costs. But if you qualify for Cost Sharing Reduction, your deductible for a Silver plan could be between $100 and $500, depending on your income.
  • It can lower your copayments or coinsurance.
    A copayment is a small amount you pay each time you use a specific healthcare service. If your Silver plan’s copayment is $40 for a doctor’s visit, and you enroll in the plan and qualify for extra savings, you may pay $30 or $20 instead.
  • It can lower your out-of-pocket maximum.
    This is the maximum amount you’ll pay toward your medical services in a given year. Let us say your out-of-pocket maximum is $3,000. Once you have reached this amount, your insurance will have to start paying 100% of your healthcare costs for the rest of the plan year. If you qualify for cost sharing reductions, instead of $3,000, your out-of-pocket maximum for a particular Silver plan could be $1,000.

Good news: Health Plans In Oregon helps Oregonians apply for the premium tax credits and cost-sharing reductions available through the Health Insurance Marketplace. 

The American Rescue Plan Act, passed in 2021, has increased the amount of the Premium Tax Credit available on Form 8962 for the 2021 and 2022 tax years, particularly for those with larger family sizes

How can you get help?

Contact Health Plans In Oregon to get health insurance quotes and compare different plans. Our assistance is always free to you, reach us at 503-928-6918. We are licensed, local agents providing service since 2006.

What is premium tax credit?

Premium Tax Credit (PTC) is a refundable credit that helps eligible individuals and families lower their monthly health insurance payments (called “premiums”) when they enroll in a plan through the Health Insurance Marketplace. To determine the amount of your tax credit, the Marketplace will use the income estimate and household information provided in your application. If you qualify for a tax credit, you have the option to apply some or all of it towards your monthly premium payments

health-insurance-premium-tax-credit-health-plans-in-oregonKeep in mind…

The only way to receive any financial assistance for health insurance or tax credit is enrolling through the Health Insurance Marketplace. That means, any direct enrollment with an insurance carrier won’t qualify you to receive any financial assistance or tax credits.

What will make you eligible for premium tax credit?

  • Your household income falls at a certain range
  • You have legal immigration status in the U.S.
  • You must enroll through the Health Insurance Marketplace
  • You must NOT have other creditable health insurance through Medicaid, Employer, Veteran’s Insurance, TRICARE or Medicare.
  • You must not be claimed as a dependent by another person to be eligible for the tax credit.
  • You do not file a tax return as Married Filing Separately, if you are legally married
  • You are a permanent resident of your state.

Since household income is needed to determine if you qualify for premium tax credit. Look at this chart to find your household size and estimated annual income.

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