What counts as income in the Health Insurance Marketplaces?

By Nancy MetcalfConsumer Reports

Q. What is included as income for calculating tax credits in the new Health Insurance Marketplaces? Does it include Social Security, pensions, food stamps, etc.?

A. Excellent and timely question, one that many readers have submitted to our Ask our health insurance specialist mailbox.

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As we wrote yesterday, people shopping for insurance on the new state Health Insurance Marketplaces will be eligible for various levels of financial help depending on their income. Obviously, what counts as income matters a lot.

Here's the answer: it's your Modified Adjusted Gross Income, or MAGI. Sounds mysterious, but it's actually not that complicated.

First, we're going to need a visual aid, this annotated copy of a Form 1040 income tax return, which you can download here.

For most households, MAGI will be exactly the same as the Adjusted Gross Income reported on line 37. (If you use the shorter Form 1040EZ, Adjusted Gross Income appears on line 4.)

Some households, though, will have income that's included in MAGI but not in regular Adjusted Gross Income:

  • Tax-exempt interest (for example, from government bonds), reported on line 8b. You  need to add that to your Adjusted Gross income to get your MAGI.
  • All Social Security benefits, reported on line 20a. Depending on your overall income, some or all of your Social Security check does not count in your Adjusted Gross Income. Add back the untaxed part to get your MAGI.

Everything else that you see in the "Income" section of the Form 1040 (in other words, lines 7 through 22), counts towards your MAGI. That includes unemployment benefits, pensions, alimony, and money you take out of an IRA or 401k.

Notice what's not on the list: Supplemental Security Income, child support, food stamps, Temporary Assistance for Needy Families (TANF), gifts, and cash withdrawals from savings. None of these are included in MAGI.

What can be deducted from MAGI? Everything listed on lines 23 through 35. That includes tuition, student loan interest, money you put into health savings accounts and IRAs, and a host of expenses and deductions available to self-employed people.

Bear in mind that the MAGI you report to your state marketplace should be your best estimate for 2014. If your income is relatively stable, you can use your 2012 tax return as a rough guide. But be sure to account for any changes in income that you can anticipate in 2014.

Got a question? Ask it here. It helps if you include the state you live in.

Today is day 6 of our 100-day Health Reform Countdown. We're getting ready for Jan.1, 2014, when the new health law takes full effect.

See our previous posts:

Day 1: Big changes coming

Day 2: Stay uninsured on purpose? Bad idea!

Day 3: Good news on health insurance premiums

Day 4: Introducing our Health Law Helper

Day 5: Need help paying for health insurance?

Confused by the new health care law? Try our Health Law Helper. And see our full coverage of health insurance and health reform.

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