IRS Form 1040įigure 1 (Form 1040 focusing on Total Income) Drum roll please… Let’s start with the 1040. Let’s look closely at how AGI is calculated first. Then, we can discuss some ways to control your income so that you don’t go over the cliff. We will learn what we have to add back below. Sometimes they are less than helpful when you are trying to consider future tax planning by calculating this year’s MAGI before all the numbers are in.Ī quick way to estimate your MAGI for IRMAA is to look at your Adjusted Gross Income from the prior year and then add back (or modify) it. And CPA’s, well, they just plug the numbers into a program and out comes the result.
Only the IRS could come up with such a scheme. MAGI for IRMAA and the ACA are slightly different as well! What a headache. In fact, there are five different MAGI’s depending on what you are trying to accomplish! MAGI for IRA deductibility uses different modifications than MAGI for health care. MAGI is important, but it is calculated differently depending on the use. In a way, you are looking at fiddling with this years’ MAGI to affect IRMAA surcharges two years in the future, for both you and your spouse. It is difficult to estimate what your income will be, let alone understand adjustments and modifications that make MAGI for ACA tax credits so powerful.įor IRMAA, you use your MAGI from two years prior to calculate the amount of surcharge (read: tax on the rich) you pay. You must estimate what your MAGI will be this year to get credits. With the ACA, the IRS pays Premium Tax Credits to your insurance company every month to lower the cost of your insurance.
MAGI calculation is important! Especially when you are talking about the difference a dollar can make with a cliff penality. Most articles skip over the step of actually calculating MAGI. Similarly, mis-estimate your MAGI by one dollar with Premium ACA Tax Credits, and you owe the IRS all of the credits you received last year! This can easily double healthcare expenses. One dollar over the cliff, and you have to pay IRMAA surcharges for an entire year. Cliff Penalty Warning!īoth of these, Premium ACA Tax Credits and IRMAA, are cliffs penalties. If you are interested in other retirement hacks, makes sure you get your free retirement checklist.
Let’s learn how to calculate MAGI for IRMAA and ACA Credits! Or if you are on Medicare and want to avoid IRMAA, you need to understand MAGI! In order to get these credits, you need to understand MAGI. Many folks will try to get Premium ACA Tax Credits to lower their health insurance bill. If you plan on retiring prior to Medicare, health care insurance is a huge concern. MAGI, however, is used twice by the IRS when trying to help you afford health care. IRMAA MAGI calculation is vital but frequently glossed over.
How to Calculate MAGI for IRMAA and Premium ACA Tax Credits
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