If you qualify for a healthcare subsidy on the Affordable Care Act's new marketplace, one factor on which the subsidy will be based is your "modified adjusted gross income." What is that and why should you care?
Most individual tax payers know "gross income" as the sum of all of their income from various sources, such as wages and interest on savings accounts. "Adjusted gross income (AGI)" reduces that sum by subtracting the allowable deductions listed on your 1040 tax form:
Adjusted Gross Income
23 Educator expenses
24 Certain business expenses of reservists, performing artists, and
fee-basis government officials.
25 Health savings account deduction.
26 Moving expenses.
27 Deductible part of self-employment tax.
28 Self-employed SEP, SIMPLE, and qualified plans
29 Self-employed health insurance deduction
30 Penalty on early withdrawal of savings
31 a Alimony paid b Recipient’s SSN
32 IRA deduction
33 Student loan interest deduction
34 Tuition and fees.
35 Domestic production activities deduction.
When applying for a health insurance tax credit, you may be told that "modified adjusted gross income" is basically the same thing. It's not.
Keeping in mind that the “M” stands for “modified,” if you took certain deductions to report your AGI, you may need to add them back to report your MAGI, such as:
Deductions for IRA contributions.
Deductions for student loan interest or tuition.
Excluded foreign income.
Interest from EE(employee) savings bonds used to pay higher education expenses.
Employer-paid adoption expenses.
In other words, the adjusted gross income you report for income tax purposes isn't necessarily the same as the modified adjusted gross income you would report for the purpose of the healthcare tax credit.
The reason to get it right when applying for a healthcare tax credit is that you'll have to pay some of it back at tax time if you under-reported your income,