- 1 No Tax Status and Limited Income Credit
- 2 Small Business Employee Benefits and HR Blog
- 3 What Is Adjusted Gross Income (AGI)?
No Tax Status and Limited Income Credit
If taxpayers do not qualify for No Tax Status (NTS), but their Massachusetts Adjusted Gross Income does not exceed certain thresholds, they may qualify for the Limited Income Credit (LIC). This credit involves an alternative tax calculation that can result in a significant tax reduction for taxpayers whose income is close to the NTS threshold.
Calculation of Massachusetts Adjusted Gross Income:вЂЁ
Adjusted gross income calculation is gross income reduced by certain business expenses and other deductions claimed on Massachusetts Schedule Y, Lines 1 - 10, such as allowable employee business expenses, alimony paid or student loan interest, etc..вЂЁWith the exception of Line 4, these are generally federal allowable deductions.
- for residents, the AGI Worksheet for NTS; if they do not qualify for NTS but may be entitled to LIC they must fill out both the AGI Worksheet and the Line 29 Worksheet;
- for nonresidents and part-year residents, Schedule NTS-L-NR/PY, No Tax Status and Limited Income Credit. They must compute their Massachusetts adjusted gross income (AGI) as if they were Massachusetts residents for the entire taxable year. In determining whether or not they qualify for NTS, they must include all non-Massachusetts source income as well as all non-Massachusetts Schedule Y, Lines 1 - 10 deductions. They fill out Schedule NTS-L-NR/PY, Lines 1 through 11; if they do not qualify for NTS but may be entitled to LIC they must fill out lines 1 through 15
Note: all losses must be reported on the worksheets/Schedules and the Schedule as zero.
If Line 7 of the Massachusetts AGI Worksheet is less than the amounts below, then taxpayer qualifies for either the NTS or LIC.
Small Business Employee Benefits and HR Blog
The Affordable Care Act (ACA) introduced premium tax credits to give you and your family a discount to buy individual health insurance coverage through the Health Insurance Marketplace. If you are eligible, these tax credits can reduce your family’s health insurance cost to no higher than 9.5 percent or as low as 2 percent of your household income . Before you can calculate the amount of your premium tax credit, you must first calculate your modified adjusted gross income (MAGI).
Note: Keep in mind that premium tax credits can work with reimbursement plans like the Small Business HRA, but that you must report your HRA allowance amount to avoid tax penalties.
Your MAGI is a measure used by the IRS to determine if you are eligible to use certain deductions, credits (including premium tax credits), or retirement plans. Eligibility for the premium tax credits is based upon whether your income is no more than 400 percent of the federal poverty line (FPL)—modified adjusted gross income, not adjusted gross income (AGI). Here's a quick overview of how to calculate your modified adjusted gross income.
Generally, your adjusted gross income is your household's income minus various adjustments. Adjusted gross income is calculated before the itemized or standard deductions, exemptions, and credits are taken into account.
What Is Modified Adjusted Gross Income?
Generally, your modified adjusted gross income (MAGI) is the total of your household's adjusted gross income plus any tax-exempt interest income you may have (these are the amounts on lines 37 and 8b of IRS from 1040).
How to Calculate Your Gross Income
Your gross income (GI) is the money you earned through wages, interests, dividends, rental and royalty income, capital gains, business income, farm income, unemployment, and alimony. This is the basis for your AGI calculation.
Gross income includes salary, interest earned, income from investments, and basically any income you made through business, trade, or investments.
How to Calculate Your Adjusted Gross Income
Once you have gross income, you "adjust" it to calculate your AGI. You make adjustments by subtracting qualified deductions from your gross income.
Adjustments can include items like some contributions to IRAs, moving expenses, alimony paid, self-employment taxes, and student loan interest. There are many free AGI calculators available online.
How to Calculate Your Modified Adjusted Gross Income
Once you have adjusted gross income, you "modify" it to calculate your MAGI. For most people, MAGI is the same as AGI.
Specifically, Internal Revenue Code ((d)(2)(B)) states that MAGI is AGI increased by:
Any amount excluded from gross income in section 911 (Foreign earned income and housing costs for qualified individuals)
Any amount of interest received or accrued by the taxpayer during the taxable year which is exempt from tax
Any amount equal to the portion of the taxpayer’s social security benefits (as defined in Section 86 (d)) which is not included in gross income under section 86 for the taxable year. (Any amount received by the taxpayer by reason of entitlement to a monthly benefit under title II of the Social Security Act, or a tier 1 railroad retirement benefit.)
The IRS phases out credits (including premium tax credits) and deductions as your income increases. By adding MAGI factors back to your AGI, the IRS determines how much you really earned.
Based on that, it determines whether you can take full advantage of premium tax credits. If you are eligible for a tax credit, an online premium tax credit calculator will help you estimate your actual tax credit.
Editor's Note: This post was originally published in August 2014.
Do you have any questions about premium tax credits? Please leave a comment below.
What Is Adjusted Gross Income (AGI)?
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You’ll see the term “adjusted gross income (AGI)” repeated throughout your tax forms. To get your adjusted gross income, you’ll subtract from your gross income — which includes wages, dividends, alimony, capital gains and retirement distributions — certain payments you’ve made during the year, such as alimony, moving expenses, student loan interest or contributions to a traditional individual retirement account.
The result — your AGI — becomes the starting point for calculating your tax bill. From there, you’ll subtract your allowable exemptions, credits and deductions to find the amount on which you’ll pay tax: That’s your taxable income.
If you have to file a state tax return, it typically also will use your federal AGI as a starting point. Credits and deductions specific to your state then figure in to determine your state taxable income.
Finally, AGI is the basis for many deductions and credits. For example, you can deduct unreimbursed losses from a fire or theft, but only when the losses are more than 10% of your AGI. The lower your AGI, the greater the deduction.
If you file taxes online, the software will calculate your AGI for you.
Available adjustments vary by tax form
Only taxpayers who file Form 1040 have access to the full extent of credits and deductions that lower AGI, such as after-tax contributions to your Health Savings Account and certain moving expenses.
If you file Form 1040A, you still have access to some adjustments. Although these are subject to change year to year, available adjustments tend to include things like:
If you file Form 1040EZ, you can’t make any adjustments; your total gross income and your AGI are the same.
(In addition to AGI adjustments, there are other considerations that determine which tax form to use.)
How AGI is used when calculating taxes
Some of the itemized deductions you can claim when filing Form 1040 or Form 1040A may be limited by your AGI amount. Medical and dental expenses, for example, can be deducted only for amounts above 10% of your AGI. In other words, a lower AGI establishes a lower threshold for deductible costs.
AGI limits also apply to the miscellaneous itemized expenses category.
In one of the ironies of the tax code, even your income adjustments are subject to AGI limitations. For example, how much tuition you can deduct depends on your modified adjusted gross income, or MAGI. And calculating MAGI can reduce or eliminate adjustments to your AGI.
If you’re filing Form 1040 and itemizing deductions, such as tax-exempt interest or Social Security benefits, you also have to calculate your MAGI. The calculation will add some of these amounts back in. Then MAGI acts as a baseline for determining the phaseout level of some credits and tax saving strategies.
If you’re filing Form 1040A, however, your MAGI is the same as your AGI.
Updated June 16, 2017
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