How to calculate MAGI or “household income” for ACA subsidies

Understanding how to calculate MAGI (Modified Adjusted Gross Income) for premium subsidies or eligibility in Medicaid is the most important step in your health insurance search. In Colorado, people with household incomes up to 138% of poverty (133% plus the built-in 5% income disregard) are eligible for Medicaid.  If your household income is between 138% and 400% of poverty, you most likely qualify for subsidies to help cover the cost of a private plan purchased through the exchange.

How to claim the ACA tax credit

This chart shows what those percentages of the poverty level translate to in terms of dollars, and it might be higher than you think; a family of four can earn up to $103,000 in 2020 and still be eligible for premium subsidies!

Those subsidies are significant: 69 percent of Connect for Health Colorado (the state-run exchange) enrollees received subsidies in 2018, and those subsidies averaged $505/month, leaving the average subsidized enrollee with an after-subsidy premium of just $136/month.

How to calculate MAGI “household income”

How to calculate household income, MAGI / Modified Adjusted Gross Income using a 1040.

This 1040 shows a Modified Adjusted Gross Income (MAGI) for this family of $41,217.

It’s usually referred to as MAGI (modified adjusted gross income), but MAGI is calculated differently in different situations.  For the ACA, there’s a specific calculation for subsidy purposes (and incidentally, it’s different from the one they use for determining whether you have to pay a penalty under the ACA).

This brief from UC Berkeley is the most concise version I’ve seen for how to calculate MAGI for determining subsidy eligibility.  But if you want the longer version, there’s this Federal Register page from 2012, which also references IRS Section 911.  Together, they tell the same story as the UC Berkeley document.

To calculate your MAGI for subsidy eligibility, you start with you AGI.  That’s line 37 on the 1040 (line 4 on the 1040EZ, or line 21 on the 1040A).  Then there are three things that you have to add to your AGI, if they apply to you:

  • Non-taxable Social Security income (this is line 20a minus line 20b on the 1040).
  • Tax-exempt interest – for example, if you have tax exempt municipal bond income (this is line 8b on the 1040).
  • Foreign earned income, and housing expenses if you live abroad (form 2555).

If you don’t have any of these three sources of income, your MAGI is the same as the AGI listed on your 1040.  But if you do have any of these sources of income, you have to add them to your AGI to get your MAGI.  For example, if your AGI is listed on your tax return as $21,000, but you also have a non-taxable Social Security income of $20,000, your MAGI for determining subsidy eligibility is $41,000.

The most common one is non-taxable Social Security benefits.  Even though those benefits are not taxed when you file your return, you need to make sure you add them to your AGI when you’re calculating your household income to see if you qualify for subsidies.  Not doing so will result in an overpayment of subsidies, and that gets reconciled when you file your taxes the following spring.  If your subsidy is overpaid, you’ll have to pay back all or part of it (depending on your income) when you file, and that’s not a pleasant surprise.

Open enrollment in Colorado begins November 1st and ends January 15, but the deadline to get coverage effective on January 1 is December 15, unless you have a qualifying event. So if you haven’t do so already, it’s time to start gathering the documentation you need for household income verification, provider network searches, drug formularies, etc. and get yourself enrolled or shop around for a new plan.  As always, we’re happy to help you compare options both on and off the exchange.