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Small Business Employee Benefits and HR Blog

How Do I Calculate My Health Insurance Tax Credit?

January 11, 2017
health insurance tax credit calculator

Massive health insurance tax credits will become available to help you and your family buy health insurance coverage through the new state Health Insurance Marketplaces. If you are eligible, these tax credits will cap the cost of your family’s health insurance at 2 - 9.5% of income. Here's a quick 2 step overview of how to calculate your health insurance tax credit.

How Do I Calculate My Health Insurance Tax Credit?

Step 1- Calculate Your Modified Adjusted Gross Income (MAGI)

Step 2 - Use Your MAGI and Household Size to Determine if You are Eligible for a Tax Credit

Step 3 - Adjust Your Premium Tax Credit by Small Business HRA Employer Contribution 

Step 1 - Calculate Your Modified Adjusted Gross Income (MAGI)

Why Does MAGI Matter?

Modified Adjusted Gross Income is a measure used by the IRS to determine if a taxpayer is eligible to use certain deductions, credits, or retirement plans. “Modified Adjusted Gross Income” (not "Adjusted Gross Income") will be used in determining eligibility for your health insurance tax credits.

The IRS phases out the tax credit as your income increases. By adding MAGI factors back to your AGI, the IRS determines how much you really earned.  Beginning in 2014, your MAGI determines whether you will be eligible for premium tax credits on the new Health Insurance Marketplaces

What is Adjusted Gross Income?

Generally, your Adjusted Gross Income (AGI) is your household's income less various adjustments. Adjusted Gross Income is calculated before the itemized or standard deductions, exemptions and credits are taken into account.

What is Modified Adjusted Gross Income?

Generally, your Modified Adjusted Gross Income (MAGI) is the total of your house hold's Adjusted Gross Income and any tax-exempt interest income you may have (these are the amounts on lines 37 and 8b of IRS from 1040). 

How to Calculate Your Gross Income (GI)

Your gross income is the money you earned through wages, interests, dividends, rental and royalty income, capital gains, business income, farm income, unemployment and alimony. This is the basis for your AGI calculation.

Gross income includes salary, interest earned, income from investments and basically any income you made through business, trade or investments. 

How to Calculate Your Adjusted Gross Income (AGI)

Once you have gross income, you "adjust" it to calculate your AGI. You make adjustments by subtracting qualified deductions from your gross income.

Adjustments can include items like some contributions to IRAs, moving expenses, alimony paid, self-employment taxes, and student loan interest.

There are many free AGI calculators available online.

How to Calculate Your Modified Adjusted Gross Income (MAGI)

Once you have adjusted gross income, you "modify" it to calculate your MAGI. For most people, MAGI is the same as AGI.

Specifically, Internal Revenue Code ((d)(2)(B)) states that MAGI is AGI increased by:

  • Any amount excluded from gross income in section 911 (Foreign earned income and housing costs for qualified individuals)

  • Any amount of interest received or accrued by the taxpayer during the taxable year which is exempt from tax

  • Any amount equal to the portion of the taxpayer’s social security benefits (as defined in Section 86 (d)) which is not included in gross income under section 86 for the taxable year. (Any amount received by the taxpayer by reason of entitlement to a monthly benefit under title II of the Social Security Act, or a tier 1 railroad retirement benefit.)

Step 2 - Use Your MAGI and Household Size to Determine if You are Eligible for a Tax Credit

You can use the following table to figure out if you would be eligible for a tax credit based on your 2013 income.

2016 Federal Poverty Line (FPL) Guidelines*

Household Size

100% of FPL**

400% of FPL

























* Different FPL Guidelines apply to Alaska and Hawaii.

** For families/households with more than 8 persons, add $4,160 for each additional person.

Source: HHS.gov 

Step 3 - Adjust Your Premium Tax Credit By Small Business HRA Employer Contribution

If your employer is offering a Small Business HRA, you must coordinate your premium tax credit to reflect the monthly allowance you receive from your employer.

Your tax credit must be deducted dollar-for-dollar by the amount of the employer allowance through the Small Business HRA.

Editor's Note: This post was originally published in February 2013.

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