Can someone explain what income a self-employed person would use for a subsidy determination? Isn't it supposed to be MAGI? but what everyone is asking me is why isn't the subsidy based on the business owner's NET income which allows them to deduct their business expenses, which is a more accurate indication of what their true earnings are. I'm not an accountant so I'm not comfortable trying to explain this to clients, but more and more I am being put in a position to have to address this kind of stuff.
Can Someone Explain MAGI and Self-employment?
- Thread starter Nikita
- Start date
MAGI is Modified adjusted gross Income.
It starts with AGI (Adjusted Gross Income) which is shown on line 37 on the Federal Form 1040 tax return. Every type of income and deduction allowed BEFORE line 37 is a part of AGI. Every type of deduction allowed after line 37 does not flow to AGI.
Once you know what the AGI is, then you modify it to add back tax-exempt interest, foreign income, and the non-taxed portion of Social Security benefits. This is MAGI.
If you'll notice on Form 1040, line 12 (Business Income or Loss) is where you report the NET income (or loss) for self-employed business income. This comes from the Schedule C.
So, the business expenses are taken into consideration on Schedule C, before they are reported on line 12, and this flows to line 37 (Adjusted Gross Income).
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Also, you may note that healthcare.gov just asks for the PROFIT or LOSS from self-employed income. They don't ask you to itemize the gross and the deductions.
It starts with AGI (Adjusted Gross Income) which is shown on line 37 on the Federal Form 1040 tax return. Every type of income and deduction allowed BEFORE line 37 is a part of AGI. Every type of deduction allowed after line 37 does not flow to AGI.
Once you know what the AGI is, then you modify it to add back tax-exempt interest, foreign income, and the non-taxed portion of Social Security benefits. This is MAGI.
If you'll notice on Form 1040, line 12 (Business Income or Loss) is where you report the NET income (or loss) for self-employed business income. This comes from the Schedule C.
So, the business expenses are taken into consideration on Schedule C, before they are reported on line 12, and this flows to line 37 (Adjusted Gross Income).
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Also, you may note that healthcare.gov just asks for the PROFIT or LOSS from self-employed income. They don't ask you to itemize the gross and the deductions.
What's the best way to verify self employment income to HC.gov considering the expenses and the deductions that are taken?
- 8,448
And I found out the hard way (Jan2014) that the question actually asks how much is your profit or loss THIS MONTH. The number that you put in this field will be annualized and converted to expected 2014 income by the illogical HC.gov software. If you try to go back and change it, a serious crash of the system can occur. So bad in fact that you'll have to create another account, using a different e-mail address, and start over from scratch.
Best advice is to take the expected 2014 MAGI and enter 1/12 of that amount into this monthly profit/loss field.
ac
If they ask for verification, they will give you a list of items that can be used to verify it.
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Thanks for those hints, AC.
I know this, but I don't see how a bank statement, ledger, etc can show deductions.
hahaha. Neither do I. It's funny what hc.gov asks for. If he has a ledger showing typical business expenses backed up by a bank statement showing a rent payment, insurance, office supplies and other obvious business expenses that helps.
- 948
You can also use the paper form found in the paper application & instructions PRIOR to actually getting on the system, so you're sure that you can proof it prior to putting in the numbers. That's worked well for me.
