What is Modified gross adjusted income? In order to understand this concept let us first look at the premium tax credits proposed by the ACA. The Affordable care Act is implemented various first-class tax credits for the US citizen so that they and their families can take advantage of purchasing health care insurance attention from the Insurance marketplace at a discounted rate.
However, in order to enjoy the discounted health care insurance, the taxpayers need to qualify for this perk. If the taxpayer qualifies for obtaining these premium tax credits, they can substantially reduce the amount of healthcare insurance of the family to 9.5% and 5% of the collective income generated from family income. However, before the taxpayer calculate the amount of tax credit premiums proposed by the Affordable care act, they need to first figure out the gross adjusted income.
An important point regarding the premium tax credits
It is essential that that taxpayer keep these two significant pointers in their mind regarding the top quality tax credits offered by Affordable Care Act.
Modified Adjusted Gross Income and the role of the Internal Revenue Service
The Internal revenue Service makes use of the taxpayers modified adjusted gross income in order to determine and figure out the fact whether they are qualified enough to utilize the tax benefits in the form of tax deductions, tax credits and in this case the IRS refer to premium tax credits that are offered by the ACA propositions and the retirement plans arrangements such as Self-employed Pensions and individual Retirement Accounts arrangements.
What is the eligibility criteria for the premium tax credits offered by ACA?
A taxpayer is only eligible for acquiring premium tax credit if their income is within the limit that is not more than 400 percent of the federal poverty line. The federal poverty line is also referred as adjusted gross income. Let us understand the concept of adjusted gross income in the light of difference between the Modified gross income and adjusted gross income.
The difference between Adjusted Gross Income and Modified Adjusted Gross Income
The gross adjusted income is calculated when the taxpayer subtracts the collective income of his family members from different adjustments
The gross adjusted income is calculated before the standard or itemized deductions, tax exclusions and credits are taken in to consideration.
On the other hand, the modified adjusted gross income is the result of the addition of all of your family members’ gross income including the income that is exclusive of any tax or interest.
Is gross income and adjusted gross income the same?
Under the gross income, all the taxpayer earnings that come from various sources such as rents, salaries, business income, dividends from shares, financial support, income from investments, earning or interest and many others. This gross income is calculate before the payment of household expenses.
However, when the adjusted gross income is taken in to question, as it name implies, the taxpayer needs to make amendments in it. By this it is meant that the gross income has to be amended or adjusted by eliminating the qualified deductions from the taxpayer’s gross income that is the total of their collective income from all sources.
What are the adjustments in taxpayer’s gross income? These adjustments include the self-employment taxes, contributions made to Individual Retirement Accounts, interests on student loans and the payment of the financial support amount.
Calculating Modified Adjusted Gross income
Once the taxpayer is done with the adjustment of his gross income, the next step they do is that they modify it. For majority of the taxpayer, this adjusted gross income and modified adjusted gross income is the same. Nevertheless, the Internal Revenue Service believes that modified adjusted gross income is in reality the adjusted gross income that is increased by these three factors:
With these three factors and the above information, the IRS draws a fine line difference between the adjusted gross income and modified adjusted gross income.