“In order for an individual to receive a subsidy which income is relevant, that of 2013 or of 2014?”
Dear New Yorker,
You want to estimate your 2014 income, when you are applying for government subsidies to pay for your health plan. The insurance marketplace uses Modified Adjusted Gross Income (MAGI). Here is the IRS’s definition of Adjusted Gross Income. Your AGI is Line 4 if you filed a Form 1040EZ; Line 21 if you filed a Form 1040A; Line 37 if you filed a Form 1040. To get Modified AGI, add back your Social Security benefits and tier 1 Railroad Benefits that would otherwise be excluded.
For some people, their 2013 income is a good estimate for 2014. People whose income varies widely from one year to the next may not want to use 2013 as their estimate.
The important thing to keep in mind is that you will “true up” your actual income and your subsidy when you file your taxes for 2014. If you under-estimate your income – that is, you earn more than you put on your application – you will get more subsidy than you should. You will then have to pay this back. Many people will want to over-estimate their income, and perhaps get a bigger refund when they file their taxes. This works if you can pay your share of your health insurance bill during the year. Some people may not have enough cash to do this.
It’s a balancing act, in other words. You will be able to report changes to your income during the year. The system should then adjust your subsidy up or down. These systems are all new and may have kinks to smooth out, however.