How Do I Calculate My Health Insurance Tax Credit?
Beginning in 2014, massive health insurance tax credits will become available to help you and your family buy health insurance coverage through the new state Health Insurance Marketplaces. If you are eligible, these tax credits will cap the cost of your family’s health insurance at 2 - 9.5% of income. Here's a quick 2 step overview of how to calculate your health insurance tax credit.
How Do I Calculate My Health Insurance Tax Credit?
Step 1- Calculate Your Modified Adjusted Gross Income (MAGI)
Step 2 - Use Your MAGI and Household Size to Determine if You are Eligible for a Tax Credit
Step 1 - Calculate Your Modified Adjusted Gross Income (MAGI)
Why Does MAGI Matter?
Modified Adjusted Gross Income is a measure used by the IRS to determine if a taxpayer is eligible to use certain deductions, credits, or retirement plans. “Modified Adjusted Gross Income” (not "Adjusted Gross Income") will be used in determining eligibility for your health insurance tax credits.
The IRS phases out the tax credit as your income increases. By adding MAGI factors back to your AGI, the IRS determines how much you really earned. Beginning in 2014, your MAGI determines whether you will be eligible for premium tax credits on the new Health Insurance Marketplaces
What is Adjusted Gross Income?
Generally, your Adjusted Gross Income (AGI) is your household's income less 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 house hold's Adjusted Gross Income and 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 (GI)
Your gross income 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 (AGI)
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 (MAGI)
Once you have adjusted gross income, you "modify" it to calculate your MAGI.
Specifically, Modified Adjusted Gross Income (MAGI) is calculated by adding back certain items to your Adjusted Gross Income including:
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Deductions for IRA contributions.
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Deductions for student loan interest or tuition.
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Excluded foreign income.
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Interest from EE (employee) savings bonds used to pay higher education expenses.
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Employer-paid adoption expenses.
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For most people, MAGI is the same as AGI.
Step 2 - Use Your MAGI and Household Size to Determine if You are Eligible for a Tax Credit
You can use the following table to figure out if you would be eligible for a tax credit based on your 2013 income.
2013 Federal Poverty Line (FPL) Guidelines*
|
Household Size
|
100% of FPL**
|
400% of FPL
|
|
1
|
$11,490
|
$45,960
|
|
2
|
$15,510
|
$62,040
|
|
3
|
$19,530
|
$78,120
|
|
4
|
$23,550
|
$94,200
|
|
5
|
$27,570
|
$110,280
|
|
6
|
$31,590
|
$126,360
|
|
7
|
$35,610
|
$142,440
|
|
8
|
$39,630
|
$158,520
|
|
* Different FPL Guidelines apply to Alaska and Hawaii.
** For families/households with more than 8 persons, add $4,020 for each additional person.
Source: HHS.gov
|
If you are eligible for a tax credit, an online tax credit calculator will help you estimate your actual tax credit. This estimate will give you an idea of how much health insurance will cost you and your family in 2014. Insurance rates for 2014 have not yet been finalized so keep in mind that, once you are ready to purchase a health plan, the actual cost will likely change from this estimate.
Note: This should not be taken as legal or tax advice.
