What does the Marketplace count as income?
The Marketplace measures income using something called your “Modified Adjusted Gross Income” (MAGI). MAGI is your taxable income with some deductions added back, and is mostly the same as the Adjusted Gross Income (AGI) that you report on your federal tax return. You can find your AGI in the following places:
- Form 1040 – Line 37
- Form 1040EZ – Line 4
- Form 1040A – Line 21
Calculating Modified Adjusted Gross Income (MAGI)
MAGI = AGI + Certain types of income
1. Calculate Adjusted Gross Income (AGI)
- Wages, salaries, tips, etc.
- Taxable interest
- Taxable amount of pension, annuity or IRA distributions and Social Security benefits4
- Business income, farm income, capital gain, other gains (or loss)
- Unemployment compensation
- Ordinary dividends
- Alimony received
- Rental real estate, royalties, partnerships, S corporations, trusts, etc.
- Taxable refunds, credits, or offsets of state and local income taxes
- Other income
- Certain self-employed expenses5
- Student loan interest deduction
- IRA deduction (traditional IRAs)
- Moving expenses
- Penalty on early withdrawal of savings
- Health savings account deduction
- Alimony paid
- Domestic production activities deduction
- Certain business expenses of reservists, performing artists, and fee-basis government officials
Note: Check the IRS website for detailed requirements for the income and deduction categories above. Do not include Veterans’ disability payments, workers’ compensation or child support received. Pre-tax contributions, such as those for child care, commuting, employer-sponsored health insurance, flexible spending accounts and retirement plans such as 401(k) and 403(b), are not included in AGI but are not listed above because they are already subtracted out of W-2 wages and salaries.
2. Add back certain types of income
- Non-taxable Social Security benefits4 (Line 20a minus 20b on a Form 1040)
- Tax-exempt interest (Line on 8b on a Form 1040)
- Foreign earned income & housing expenses for Americans living abroad (Form 2555)
Common Income Questions
THERE ARE SEVERAL PEOPLE IN MY HOUSEHOLD WHO EARN INCOME. DO I REPORT EVERYBODY’S INCOME OR JUST MY OWN?
For the premium tax credits and cost-sharing subsidies, report your income, your spouse’s income and the income of any dependents on your tax return who are required to file taxes.
DO I REPORT MY PAST INCOME, CURRENT INCOME, OR FUTURE INCOME?
The income that you report should be for the year that you want health insurance. If you apply in November 2017 for insurance to start in January 2018, you will need to estimate your future income for 2018.
If you are applying during the same year you will have insurance (for example, applying in February 2018 for insurance that would start in March 2018), you would report your expected income for 2018.
HOW DO I ESTIMATE MY INCOME FOR A YEAR THAT HAS NOT ENDED YET?
If your income if from a regular paycheck, it will not be difficult. But if your income is unpredictable because you run your own business, are a freelance, work on commission, or are seasonally employed, you may not know your exact income because it has not come in yet. You need to make the best possible educated guess.
If you filed a federal tax return last year, you can look at the Adjusted Gross Income you reported. Then add or subtract, depending on how you think your income might change. Don’t forget to deduct self-employment expenses.
WHAT HAPPENS IF I GUESS WRONG?
It is important to be as accurate as you can when estimating your income. If you under-estimate your income on your application, you may receive more financial help than you should and will pay all or part of it back when you file your taxes next year. The amount you owe would depend on what your final income turns out to be.
But, if you over-estimate your income on the application, the tax credit you receive in advance may be less than you are entitled to receive. If that’s the case, you will receive the rest of your premium tax credit when you file your taxes and may receive a tax refund.
One way to avoid owing all or a portion of your tax credit back later on is to ask for only a portion of the tax credit in advance to help lower your monthly premiums throughout the year. You will get the rest of your tax credit when you file your taxes. You can also take none of the tax credit in advance, and you will receive any credit you are entitled to on your tax return.
HOW WILL THE MARKETPLACE VERIFY MY INCOME?
The Marketplace will verify the income you reported on your application by electronically checking the Internal Revenue Service (IRS) database and other databases to see if what you reported is the same as what they have on file. This is called “income verification.” The IRS will not share your personal tax data with the Marketplace. They will just tell the Marketplace if the income you reported does or does not match what they have on file for you.
Usually, the IRS information comes from your last tax filing. That means that sometimes the Marketplace is comparing the income you reported in your application with income that is a few years old. When you apply for coverage in 2018, that’s probably going to be your 2016 tax return. If your income has changed since then, your reported income may not match the data the file.
- If your estimated income is similar or higher than what is on file, it will likely be verified electronically without any additional steps.
- If your projected income is lower than what is on file or if the Marketplace cannot find any electronic data on your income (for instance, if you have not filed a recent tax return), the Marketplace may ask you to provide more information to prove that your guess in accurate. You will have 90 days to get this done. You will get health insurance and temporary tax credits while you are waiting. If you don’t prove your income is what you say it is, your tax credits may end or change to match the information on file.
What documents will I need to prove my expected income?
If the Marketplace can’t verify your income or you are claiming a decrease in income from the information on file, you might have to give them documents to show them what you say is likely true. Many types of proof are acceptable.
Acceptable forms of proof…
- Most recent W-2
- A recent pay stub
- A letter from your employer
- A copy of a check paid to you as wages
- Signed time sheets
- Most recent 1099-MISC
- Most recent quarterly or year-to-date profit and loss statement
- Bookkeeping records or a self-prepared ledger that shows income and deductible expenses
- Bank statement showing deposits and expenses from your business
- Form SSA-1099 Social Security benefits statement
- Any correspondence from the Social Security Administration that shows your benefit amount, including a Cost of Living Adjustment letter
- A statement of your unemployment compensation benefits
- Bank of investment fund statement
- A lease agreement that shows income from rental property
- Proof that you qualify for Food Stamps, TANF, or Medicaid
- Veterans Benefit statement
If you cannot provide any of the listed document, do your best to submit something that proves that you will earn what you reported on your application.
This information was taken from turbotax.intuit.com and