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Definition of Household Income

Beginning in 2014, individual taxpayers are generally required to carry health insurance for themselves and their family. In determining any possible penalty under §5000A for failure to carry insurance as well as determining any possible premium tax credit allowed by §36B to help afford such insurance, the term household income is important. As a reminder, the premium tax credit is a new credit to assist taxpayers in affording health insurance who can’t get insurance through an employer.

Household income is a new term that was created in the tax code upon the creation of the Affordable Care Act (ACA). Household income is defined as modified adjusted gross income (MAGI) of the taxpayer, plus MAGI of all other taxpayers who were taken into consideration of the family size and were required to file a tax return. MAGI is defined as AGI plus tax-exempt interest and income excluded under the foreign earned income exclusion [§5000A(c)(4)]. Solely for purposes of the premium tax credit, MAGI also includes social security benefits exempted from income [§36B(d)(2)(B)(iii)].

Generally, family size is based on the number of individuals for whom the taxpayer is allowed a personal exemption on his or her tax return. What does this mean for a typical family of four with children working part-time summer jobs? This means that in addition to considering the joint return’s MAGI, the taxpayer must also consider the children’s MAGI from their respective tax returns.

For more information regarding ACA and to help plan for the upcoming credit and penalty, consider NATP’s Simple Guide to the Patient Protection and Affordable Care Act in the Tax Store, our research service and NATP’s website dedicated to ACA.

Featured in TAXPRO Weekly - June 27, 2013

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