Is MAGI important?
The answer to this question is very simple and straightforward. Yes! MAGI is very important yet so complicated.
Mention MAGI anywhere, and it is likely that you will be bombarded with a myriad of questions. What is MAGI? Who is MAGI for? How is MAGI calculated? All these are valid questions you should know the answers to.
If you are a business owner who cannot afford to provide their employees traditional group health insurance, it means you are underpaying your employees and only giving them a fraction of their deserved premiums. If this is your case scenario, then it is necessary for you to understand more about MAGI.
Why should you as an employer know about MAGI?
Employees tend to ask for information from their employers on matters concerning health insurance. It is highly likely that your employees will ask you about MAGI, and how to calculate it, in order to determine if they are eligible for premium tax credits.
As an employer, it is then imperative to guide your employees and help them make an informed decision by explaining what MAGI is and how it is used.
Modified Adjusted Gross Income, in short MAGI, is an income calculation formula that was developed by the federal government. This formula is used to determine if a person is eligible for tax credits or any assistance program.
So, what is the relationship between MAGI and individual health insurance?
If your employees have individual health insurance policies, then it is crucial for you to learn about MAGI.
Once you get to understand what MAGI is you get to gain more knowledge about the eligibility of tax credits, adoption credits, education tax credits, retirement savings deductions, and medicaid eligibility.
How do you calculate MAGI?
There are two critical components of the Modified Adjusted Gross Income (MAGI). These components include income counting and household composition.
The first step of calculating MAGI is calculating the income according to federal tax laws. The next step is calculating the family size and household composition. The results are then compared to the Federal Poverty Level to determine if a person is eligible for exemptions.
To calculate if an employee is eligible for advance premium tax credits and cost-sharing reductions, the annual income is calculated. Monthly income is used to calculate eligibility of Medicaid and CHIP.
Knowing how to calculate MAGI is very helpful, especially in determining tax credits. As an employer you should know what MAGI is for the benefit of your employees.