Marketplaces, Medicaid, and CHIP all use MAGI to determine a household’s income for eligibility. MAGI stands for Modified Adjusted Gross Income. The best way to figure it out is to work through the numbers backward.
Start with your gross income, which is your total taxable income. If you have multiple income streams, you add them all together to get your total income. Taxable income may include wages, salaries, bonuses, alimony, self-employment income, pensions, punitive damages, IRA distributions, jury duty fees, unemployment compensation, rents, royalties, severance pay, gambling winnings, interest, tips, and estate or trust income.
You may also be receiving income that is not considered taxable. You do not have to include this income when applying for Medicaid. Types of non-taxable include may include child support, gifts, veterans’ benefits, insurance proceeds, beneficiary payments, AFDC payments, injury payments, relocation pay, TANF payments, workers’ compensation, federal income tax refunds, and SSI payments.
Once you know your gross income, you can subtract IRS-approved deductions to get your adjusted gross income (AGI). For those that are self-employed, these deductions include any business related expenses. They also include alimony payments, IRA contributions, tuition and fees, student loan interest, and work-related moving expenses.
Finally, once you have your AGI, you can figure out your MAGI. For most people, your AGI and your MAGI will actually be the same amount. There are very specific items that are modified to create your MAGI, but they simply don’t apply to all people.
The first item is foreign earned income. If you earn money working overseas, it can often be excluded from your gross income when filing your income taxes. Foreign earned income needs to be added back into your gross income to calculate your MAGI.
The second factor is exempt interest. When you are filing your income taxes, some interest you may receive throughout the year is exempt from you having to pay taxes on it as part of your income. However, when determining your MAGI, that interest does count towards your gross income, so it needs to be added back in.
Finally, the third factor is any amount of money that is equal to the portion of your social security benefits that was not counted towards your gross income under Section 86 of your income taxes. Once again, this amount will need to be added to your gross income in order to calculate your MAGI.
Generally speaking, the higher your income, the less premium tax credits you receive. Your MAGI provides a truer look at how much money you actually bring in so that determining your eligibility for premium tax credits is fair and equitable.