Individual taxpayers will generally be required to carry health insurance for themselves and their family beginning in 2014. In order to more fully understand any potential penalty for failing to carry insurance and any tax credit that would help taxpayers afford such insurance the term household income has become relevant and more clearly defined. (download our free guide here)
Household income is a relatively new term that was created in the tax code upon the creation of the Affordable Care Act (ACA). Household income has come to be defined as modified adjusted gross income (MAGI) of the taxpayer plus MAGI of all other taxpayers taking into consideration family size and the fact that a tax return was filed. Your MAGI is considered your AGI plus tax-exempt interest and income excluded under the foreign earned income exclusion. For the sole purposes of the premium tax credit MAGI also includes social security benefits exempted from income.
Family size is generally based on the number of individuals for whom the taxpayer is allowed a personal exemption on his or her tax return. So for a family of four with children working part-time summer jobs in addition to considering the joint returns MAGI the taxpayer must also consider their children’s MAGI from their respective tax returns.
For more information on how household income works or to learn more about the tax rules associated with the Affordable Care Act contact Lindemeyer CPA and we will help you plan for the upcoming credit and penalty and prepare your taxes to your best advantage.