Other Allowable Income Deductions (Adjustments to Gross Income)

In addition to pre-tax deductions, MAGI allows other income deductions which are “adjustments” to the individual’s gross income. These adjustments allow certain types of expenses to be deducted from the income after taxes are paid. Meaning, income taxes have already been paid prior to incurring these expenses. These deductions are claimed as a deduction on the Federal Income Tax Return at the end of the tax year.

These deductions can be found on IRS Schedules (1-6) form 1040. However, the individual does not have to file a tax return to get the deduction, for instance someone who is not required to file income taxes or new self-employment, therefore, the past three months of business ledgers detailing revenue and expenses is acceptable.

Only enter deductions allowable under MAGI guidelines

Not all schedules are applicable to MAGI guidelines

Other types of the IRS forms that are acceptable and may replace the need for IRS Form 1040: IRS Form 1040-SR – U.S. tax return for seniors Alternative to using Form 1040 For taxpayers age 65 or older Uses the same schedules and instructions as Form 1040 1040-X – Amended U.S. Individual Income Tax return Now can be filed electronically starting in tax year 2019 Mail in option is still available Used to make adjustments to an already filed 1040 or 1040-SR IRS Form 1040-ES – Estimated Tax Payments

NOTE: For more information on IRS forms, instructions, and publications, see irs.gov/forms-instructions .

When other allowable deductions are not reported or they are unknown, make an eligibility determination without applying the deduction. Do not deny or close an application or case for verification of deductions.

Deductions may exceed the MAGI based household income. When this occurs, the MAGI household income would be less than zero. To compare household budget to MAGI income maximums (FPL), use $0 as the MAGI household income.

NOTE: Income and deductions should be entered as reported by the individual. Allow the system to calculate the $0 budget; do not manually enter a $0 budget.

Allow the following expenses as deductions from an individual’s Adjusted Gross Income:

Educator Expenses Information can be found on IRS Schedule 1 (Form 1040) in Part II Adjustments to Income. To receive the educator expense the individual must be an eligible educator. An eligible educator is a full time teacher of kindergarten through twelfth grade. Half-time, part-time, or homeschool teachers do not qualify for an educator expense deduction. An eligible educator can deduct up to $250 per tax year of qualified expenses. If married and both spouses are eligible educators, they can deduct up to $500 per tax year of qualified expenses. However, neither spouse can deduct more than their own expense, up to $250. Qualified educator expenses include materials used in a classroom such as: books, supplies, and equipment (computers, software and services). Home schooling supplies and non-athletic supplies for physical education or health classes are not qualified expenses.

Certain Business Expenses of Reservists, Performing Artists, and Free-Basis Government Officials Information can be found on IRS Schedule 1 (Form-1040) in Part II Adjustments to Income. Certain business expenses of National Guard and reserve members who traveled more than 100 miles from home (one-way) and stayed overnight to perform services as a National Guard or reserve member; Performing arts-related expenses as a qualified performing artist; and Business expenses of fee-basis state or local government officials.

Health Savings Account (HSA) Deduction Information can be found on IRS Schedule 1 (Form-1040) in Part II Adjustments to Income.

NOTE : This is different from the HSA pre-tax deduction. This amount is based on Form 8889, not the individual’s pay stub.

A deduction for contributions made from a person’s income to a qualified HSA during the year. Contribution maximum amounts made to an HSA are limited by the IRS and vary depending on if the coverage is self-only or family coverage. In common situations: Maximum Annual HSA Contributions 2020 2021 2022 Self-Only Coverage $3550 $3600 $3650 Family Coverage $7100 $7200 $7300 Individuals age of 55 or older at the end of the tax year are allowed a higher limit, the contribution limit based on type (self or family) of coverage will increase by $1000 annually. Reminder: limits change annually and should be reviewed based on the particular tax year limit. See: Publications 969 for the particular tax year .

Archer Medical Spending Account (MSA) Deduction

Send an IM-14 using the appropriate supervisory channels

Moving Expense (ONLY for certain Armed Forces Members) Information can be found on IRS Schedule 1 (Form-1040) in Part II Adjustments to Income. Costs of moving can be deducted if the individual is a member of the Armed Forces on active duty and due to a military order move because of a permanent change of station. The standard mileage rate for using your vehicle to move to a new home is 18 cents a mile. The deduction is for reasonable unreimbursed expenses of moving Moving household goods and personal effects, and Travel

Self-Employed SEP, SIMPLE, and Qualified Plans Information can be found on IRS Schedule 1 (Form-1040) in Part II Adjustments to Income. A deduction for contributions to a qualified retirement plan for the self-employed and clergy members. Send an IM-14 through normal supervisory channels if deductions are questionable.

Self-Employed Health Insurance Deduction Information can be found on IRS Schedule 1 (Form-1040) in Part II Adjustments to Income.

NOTE : This is based on forms; Schedule C, C-EZ, or F

Amount paid for health insurance when an individual is self-employed. This deduction may include the expense paid for the self-employed individual, and the individual’s; spouse, children (under the age of 27 at the end of the tax year) and tax dependents. The insurance plan must be established under the self-employment business.

NOTE : If the self-employed individual is enrolled under a spouse’s health insurance plan (or any other health insurance plan other than under the business), do not use the amount paid for health insurance.

Penalties on Early Withdrawal of Savings

Information can be found on IRS Schedule 1 (Form-1040) in Part II Adjustments to Income. A deduction for penalties paid for early withdrawal of savings from certain financial accounts.

Alimony Paid Information can be found on IRS Schedule 1 (Form-1040) in Part II Adjustments to Income. A deduction for payments to or for a spouse or former spouse under a divorce or separation agreement finalized prior to January 01, 2019 and no changes made to the agreement after January 01, 2019.

Contributions to Individual Retirement Accounts (IRA’s) Information can be found on IRS Schedule 1 (Form-1040) in Part II Adjustments to Income. Contributions made to a traditional IRA during the taxable year may be deducted. The person must have earnings in the year to qualify for the deduction.

NOTE : This does not include contributions to Roth IRAs.

General limit: $5,500 ($6,500 if age 50 or older) annual contribution

Student Loan Interest Deduction A qualified student loan is defined as any loan taken out to pay qualified higher education expenses for any of the following people: The individual or their spouse. The individual’s tax dependent. Any person the individual could have claimed as a tax dependent but did not because of one of the following: The person filed a joint tax return with someone other than the tax filer paying the qualified student loan interest. The person had gross income that was equal to or more than the exemption amount for that particular tax year. The individual or their spouse could be claimed as a tax dependent by another person. A student loan is not considered qualified when: Any of the proceeds of the loan were used for purposes other than the qualified higher education expenses, The loan proceeds were borrowed from a relative, or The loan proceeds were borrowed from a qualified employer plan. The individual does not have to be a student in the current tax year. Information can be found on IRS Schedule 1 (Form-1040)(Form-1040) in Part II Adjustments to Income. A person may take this deduction if all of the following apply: The person paid interest in the taxable year on a qualified student loan; The person’s filing status is any status except married filing separately; The person’s modified adjusted gross income is less than the allowable amount as listed in the instructions for Form 1040. This amount is subject to change each year. Review the Form 1040 Instructions to find the allowable amount for the applicable year. The instructions can be found at www.irs.gov , Forms, Instructions & Publications . The person is not claimed as a dependent on someone else’s tax return.

Deductible Part of Self-Employment Tax

Information can be found on IRS Form 1040, – of Schedule 1. The deductible amount of self-employment tax owed by an individual for their self-employment business.

NOTE: This is based on the IRS Schedule SE (Self-Employment Tax) Form-1040.