The Most Common Error People Are Making with Obamacare


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11-14-13

We continue to get questions after the Obamacare webinars. Look for more information on how to navigate the tricky waters of Obamacare coming soon! Today, though, I want to address one of the questions I did receive after the webinar.

During the Obamacare presentation, I explained how your cost is going to hinge on three things:

  • Your personal demographics (your age, where you live)
  • Your household size (don’t assume you know what this means. It’s a new definition)
  • Your ‘income’. The income is calculated using a unique formula specifically for Obamacare.

The question I received related to the third part of this formula – the definition of income.

Here is the question, paraphrased.

“Which income should be used…the income from 1040, line 22 (total income)?”

The calculation for income in this case is called MAGI (modified adjusted gross income). The definition is at Internal Revenue Code Section 36B(d)(2)(B). That code section then also references Internal Revenue Code Section 911.

The MAGI calculation starts with the adjusted gross income (AGI) on your tax return. That’s the final line of page 1 of your Form 1040. During the webinar I discussed some of the things that go into the calculation. For example, it includes W-2 income, interest, dividend, business income or loss, pension plan deductions and more. I also identified 6 key places where you can personally adjust your AGI to reduce the income you need to use for Obamacare insurance. If your income gets below 4 times the poverty level, you will pay less.

AGI isn’t where the calculation stops, though. You have to add back tax-exempt interest, Social Security that was not taxed and foreign income that had been excluded.

When it comes to Obamacare, the more you learn, the less you’ll pay. Come to think about it, that’s how tax planning works too.



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