If you were without health insurance, for 3 or more full months during a calendar year, then Modified Adjusted Gross Income (MAGI) may need to be used for calculating an Obamacare fine.
MAGI, when it’s above a certain income level, is a major part of an Obamacare penalty calculation under the ACA’s Minimum Essential Coverage requirement.
MAGI is Truly Confusing
Modified Adjusted Gross Income can certainly be confusing, and even difficult to estimate, since this new ‘MAGI’ term does not actually appear on any line of your IRS tax return.
In fact, MAGI as it relates to Obamacare, is different from other forms of Modified Adjusted Gross Income. The term has other IRS uses that are completely unrelated to Obamacare!
MAGI Not Always Relevant
If your income is not high then it’s likely the more straightforward flat rate penalty amount will apply to your situation. Higher earners, on the other hand, could be liable for an Obamacare fine based on a percentage of MAGI.
Our calculators will use the appropriate method, but that depends on the amount you’ve entered for your Modified Adjusted Gross Income. So, it’s important to understand MAGI.
Your Modified AGI Explained
Most people will be able to use their Adjusted Gross Income (AGI) interchangeably with their MAGI to arrive at an accurate Obamacare fine. If you have a simple tax return they should match up.
There could, however, be certain items that need to be added and/or subtracted to Adjusted Gross Income in order to arrive at your MAGI.
Looking at Your Tax Return
The first step is to locate your AGI which is found on line 37 of Form-1040, or line 21 of Form-1040A or line 4 if you used Form-1040EZ.
Then, if applicable, add the following items:
- Any tax-exempt interest (Line 8b)
- Social Security not already included in gross income (difference between Line 20a & 20b)
- Any foreign-earned income or housing costs that were tax exempt (if filing form 2555 or 2555-EZ which applies to expats)
Then, if applicable, deduct these items:
- Deductions for certain IRA contributions
- Deductions for any student loan interest
- Qualified saving bond(s) interest
- Any employer-provided adoption benefits
If these apply to you then adjust your AGI accordingly in order to accurately calculate a Obamacare fine.
Combine Your Household MAGI
If you have more than one wage earner, including income from a spouse or child or any other dependent, then your combined MAGI could increase.
Income from dependents on your return, who would otherwise be required to file a tax return independently, needs to be added to the total MAGI for the purposes of calculating an Obamacare fine.
The above is true even if the dependents already have or don’t need health coverage. Further, this requirement applies to every IRS filing status such as Head of Household, Married or Single.
Dependents & Filing Requirements
Many dependents have income that falls below IRS filing requirements. In such cases, your combined household MAGI would not increase. It’s the equivalent of no gross income as it applies to the ACA penalty.
(MAGI – Threshold) X Percentage
After you have your combined Modified Adjusted Gross Income you are ready to calculate the ACA fine, if any. This MAGI amount, when it exceeds a certain dollar figure, will become a factor when a flat rate ACA fee does not apply.
Your tax filing threshold is deducted from your MAGI before accessing an Obamacare penalty based on a fixed percentage which is 2.5% for 2016.
Essentially, when an Obamacare fine is determined using a percentage of MAGI, you’ll only pay an amount based on income above your filing threshold.
Compare with Flat Rate Penalty
Be sure to make a comparison between the flat rate fine amount and the amount based on your MAGI. The Obamacare penalty is always the higher of the two calculation methods.
However, the penalty can never exceed a maximum cap which is set yearly and based upon the national average Bronze level premium plan.
The Other Important Factors
Remember that MAGI in addition to your filing status, dependents, number of uninsured months are all factors for determining an Obamacare fine. This is assuming there are no exemptions available to you.
Be sure to speak with your accountant or tax professional, particularly for help with MAGI. The penalty provision of the Affordable Care Act can be quite complicated!