What counts as income for MAGI?

A key service agents provide to ACA health insurance eligible clients is assisting them to determine their Modified Adjusted Gross Income, MAGI. This unfortunately puts agents in the role of being income and tax experts. One of the biggest questions agents get is what qualifies as household income for the purpose of receiving the Advance Premium Tax Credits.

What income is included in MAGI?

What was lost on the authors of the Affordable Care Act is that individuals can have numerous types of income from hourly wages to annuity income. In general, if it is not “taxable income” it’s not part of the MAGI. The two big exceptions are Social Security benefits and tax-exempt interest. The other gray areas are workers compensation and disability insurance payments. These sources of income are usually not taxed unless they are in lieu of unemployment benefits.

The Affordable Care Act defines household income as –

Modified adjusted gross income means adjusted gross income (within the meaning of section 62) increased by

(i) Amounts excluded from gross income under section 911;

(ii) Tax-exempt interest the taxpayer receives or accrues during the taxable year; and

(iii) Social security benefits (within the meaning of section 86(d)) not included in gross income under section 86.

I believe section 911 refers to Foreign Earned Income Exclusion.

In an era when filing out our tax returns is so complicated most of us just turn over the paper work to a tax preparer, it can be a challenge for an average family or insurance agent to know what income streams should be included on the ACA application for health insurance.

IRS Publication 525

Below is short list of some of the various types of income the IRS recognizes. Some of the income is not taxable and therefore should not be included in the MAGI and is notated with a NO in the Taxable/MAGI column. Some types of income are marked as both YES and NO indicating that there may be circumstances where only a portion of the income should be included in the MAGI. For more clarification on the income type you can download IRS Publication 525 that describes the different types of taxable income and conditions that make it taxable.

For example, the benefits from an individuals disability insurance plan are not taxable. However, if the plan is provided by the employer at no cost to the employee, the IRS says the benefits are taxable. If the employee makes a contribution toward the premium amount for the disability plan then part of the monthly benefits are not taxable.

Sickness and Injury Benefits

In most cases, you must report as income any amount you receive for personal injury or sickness through an accident or health plan that is paid for by your employer. If both you and your employer pay for the plan, only the amount you receive that is due to your employer’s payments is reported as income. However, certain payments may not be taxable to you. For information on nontaxable payments, see Military and Government Disability Pensions and Other Sickness and Injury Benefits, later in this discussion.

Workers’ Compensation

Amounts you receive as workers’ compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers’ compensation act or a statute in the nature of a workers’ compensation act. The exemption also applies to your survivors. The exemption, however, does not apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury.

The income table was prepared with additional guidance from the UC Berkeley Labor Center flyer on MAGI. While I have tried to prepare the most accurate reference table possible, there may be errors. You should always confer with a certified tax prepare, CPA and the state or federal health exchange to verify whether the income and circumstances require it to be included in the MAGI calculation.

Tax Topics – Types of Income	Taxable		Form
Employer	MAGI
Hourly Wages	Yes		W-2
Salary	Yes		W-2
Tips	Yes		W-2
Employer Contribution to Pension		No
Bartering Income	Yes		Form 1040, Sch. C
Fair market value of barter	Yes		Form 1099-B
Business Income
Sole Proprietor	Yes		Schedule C
Partnership	Yes		Form 1065, Sch. K-1
Corporation	Yes		Form 1120
Subchapter S Corp.	Yes		Form 1120S, K-1
Cancelled Debt
Cancelled, forgiven, discharged debt	Yes	No	Form 1099-C
Loss of property	Yes	No	Pub. 544, 523
Capital Gains and Losses
Sale of asset: gain or loss	Yes		Form 1040, Sch. D, Form 8949
Clergy
Employed clergy	Yes		Pub. 517, Pub. 15-A, Form 1040 Sch. A
Self-employed clergy	Yes		Form 1040 Sch. C
Housing allowance	Yes	No
Dividends			1099-DIV
Cash	Yes
Stock	Yes
Property	Yes
Estate, Trust, Subchapter S	Yes
Shareholder debt paid	Yes
Shareholder services received	Yes
Shareholder property use	Yes
Stock rights	Yes
Return of Capital		No
Ordinary dividends	Yes
Qualified dividends	Yes
Farming and Fishing Income
Farming income	Yes		Form 1040, Sch. F, Pub. 225
Fishing income	Yes		Form 1040, Sch. C, Pub. 334
Gambling Income and Losses			Form W-2G
Lottery winnings	Yes		Form 1040 Sch. A, Pub. 505
Raffles winnings	Yes
Horse races winnings	Yes
Insurance payments
Accelerated death benefits, viatical settlement		No
Disability insurance plan owned by individual		No	Pub. 525
Disability Pensions, 100% employer paid	Yes		Pub. 525
Endowment contract proceeds	Yes	No
Government service disability payments		No	Pub. 525
Interest on life insurance benefit installments	Yes
Life insurance benefits lump sum		No	Pub. 525
Long Term Care Insurance		No	Pub. 525, Form 8853
Military disability payments		No	Pub. 525
Social Security Disability Insurance (SSDI)	Yes
State Disability Insurance Ca SDI	Yes	No
Surrendered life policy	Yes	No
Workers’ Compensation	Yes	No
Interest			1099-INT
Bank accounts	Yes
Money Market Accounts	Yes
Certificates of Deposit	Yes
Deposited Insurance Dividends	Yes
VA Dividend Insurance	Yes	No
EE & Series I Savings Bonds	Yes	No
Redeemed/Matured Savings Bonds	Yes
Educational Savings Bonds	Yes	No
Dividends on deposits or shares	Yes
Treasury bills, notes & bonds	Yes
State, D.C., U.S. Possession bonds	Yes	No
Tax exempt interest	Yes
Lump Sum Retirement Distributions			Form 1099-R
Lump Sum Amount	Yes
Lump sum roll over		No
Securities received, but not sold		No
Other
Alaska Permanent Fund dividend	Yes
Alimony received	Yes
Child Support received		No
Royalties	Yes		Form 1040, Sch. 3, Pub. 525
Passive Activities – Losses and Credits
Losses that exceed income		No	Form 8582, Pub. 925
Pensions and Annuities
Payments with no investment	Yes		Pub. 575
Payments with prior investment	Yes	No	Pub. 575 & 721
Receipt of Stock in Demutualization
Stock distribution		No	Form 1040, Sch. D, 8949
Cash distribution	Yes
Rental Income and Expenses
Income less expenses	Yes		Form 1040, Sch. E
Renting Residential and Vacation Property
Rental income less expenses	Yes		Form 1040, Sch. E
Rollovers from Retirement Plans			Pub. 575
Rollover within 60 days		No
Scholarship and Fellowship Grants			Pub. 970
Qualified educational expenses		No
Non-educational related funds	Yes
Payments for services	Yes
Social Security and Railroad Retirement
Social Security income	Yes	No	SSA-1099
Railroad retirement benefits	Yes	No	RRB-1099
Stock Options
Statutory (ISO) stock option sale	Yes		Form 6251, 3921, 3922
Non-statutory stock option sales	Yes		Pub. 525
Traders in Securities
Traders – income	Yes		Form 1040, Sch. C
Mark to Market income	Yes		Form 1040, Sch. D, 4797, 3115
Unemployment Compensation
Unemployment Compensation	Yes		Form 1099-G
Private unemployment benefits	Yes	No
Welfare based on need
Disaster relief grants		No
Disaster relief payments		No
HAMP		No
Mortgage assistance section 235		No
Nutrition for elderly		No
Relocation payments		No
Replacement housing		No
RTAA payments	Yes
Supplemental Security Income (SSI)		No
Victims of crime assistance		No
Winter energy cost reduction payments		No
Work-training program	Yes	No
401(k) Plans
Distributions from 401(k) plan	Yes		Pub. 525

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