Income - What Counts?
When you fill out a Marketplace application, you'll need to estimate what your household income is likely to be for the year you want coverage.
The year starts from January and runs through December. The year that you will be receiving premium tax credits
The hope, when applying through the Marketplace, is that you will qualify for a premium tax credit or what some people refer to as a subsidy. This can greatly reduce the cost of health insurance.
Jump ahead to → Income you need to count.
Depending upon your income you may also qualify for a very good benefit called Cost-Sharing Reductions (CSR). It is a confusing term. If you do not already understand CSR, you are encouraged to read more and see examples of how it can benefit you. → Cost-Sharing Reductions
Premium tax credits, Medicaid and CHIP eligibility are determined using a household's Modified Adjusted Gross Income (MAGI).
• MAGI is Adjusted Gross Income (AGI) with some deductions added back. For the average person, this not as complicated as it sounds.
If you live in a state that did NOT join the expanded Medicaid program under the Affordable Care Act, you have the greatest risk of losing out.
♦ People living in these states must have a total income of at least 100% of the Federal Poverty Guidelines (commonly referred to as Federal Poverty Level) for their household size to qualify for help with premium credits. Anything less and you will be out of luck.
Federal Poverty Levels for 2022 (coverage year 2023)
• $13,590 for individuals
• $18,310 for a family of 2
• $23,030 for a family of 3
• $27,750 for a family of 4
A family of 4 with an annual income of $27,750 would be at 100% of FPL for their family size.
Federal poverty levels are higher in Alaska and Hawaii.
I live in a state that did not expand Medicaid - What do I do?
You will have to be the most careful. You will need an income of at least 100% of FPL for your household size as shown above. If your income varies from month to month that is okay, just do your best to estimate the total for the year.
You can look back at your previous tax year to get a feel of how much you earned.
Don't panic if you don't reach 100%. A little short, you need to put on your thinking cap.
♦ Many people forget to report income they earned from doing small jobs, especially if they are paid in cash.
♦ Many people forget hobbies that earned them small incomes. Most of these other incomes can be lumped into self-employed income.
If you are single and your income comes in at say $12,000 you won't qualify for premium tax credits. You need more income. Remember this estimate is for next year. Think about it before giving up.
Can you find a little more work to earn another $1,590?
Mow some lawns, clean some houses or do any number of tasks to earn enough to get over the hump. Most people can.
It is unlikely that you will be asked to prove this self-employed income of $1,590 because it is small. But just to be on the safe side you should keep a simple ledger.
• Remember this is only an estimate when you apply. But come tax filing time your MAGI will need to reach the minimum FPL. If you are applying for coverage starting 2023, you will file 2023 taxes in 2024.
♦ Most people get confused about what income counts. Normally it is the same income you should be reporting when you file taxes. When you filed taxes you may have been able to receive some deductions making only a portion of your income taxable.
Your Marketplace application may require you to add a few of these deductions back making your income look a little bigger than what you were taxed on. This gives you the Modified Adjusted Gross Income (MAGI) number.
I make more than 100% of FPL so am I okay?
Yes and no. It is possible to have too much income and then not qualify for any assistance.
♦ The Affordable Care Act set the cutoff at 400% of Federal Poverty Level (FPL). Anyone with income over 400% FPL cannot receive help with premiums.
You would be considered too wealthy. Our political parties are at odds, so no relief will be coming.
The American Rescue Plan Act changed everything for up to two years. The Inflation Reduction Act (IRA) of 2022 added 3 more years, through the end of 2025.
It eliminated the Federal Poverty Level (FPL) requirement based on income.
There is no limit on how much you can earn and still qualify for help paying for insurance.
At the same time the percentage you are expected to spend on health insurance was reduced to a low of 0 - 8.5%.
This results in an increased tax credit for most people.
Income you need to count
Modified Adjusted Gross Income (MAGI) is used to determine eligibility for tax credits and savings. It is not a line on your tax return.
For most people, this number will be close to their Adjusted Gross Income (AGI) which appears on Form 1040 and 1040-SR.
• The MAGI takes the AGI and adds back some deductions that you might have taken.
Many of these deductions are rare, so it's possible that your AGI and MAGI can be identical. Examples of deductions added back to AGI to come up with MAGI:
|Tax-exempt Interest Income|
|Non-taxable Social Security Benefits|
|Untaxed Foreign Earned Income|
Social Security Benefits
For many people, Social Security benefits are not taxable. Unfortunately, whether or not these benefits are taxable they must be included in the MAGI.
♦ Most retired people receiving social security are going to find their MAGI is much higher than the AGI on their tax return. You are expected to use social security dollars to help cover health insurance costs.
• Once the full amount of social security payments is added to total household income the premium tax credit will be less than most people anticipate.
• If you are expecting to receive cost-sharing reductions, it is likely that your social security dollars will shift you to a higher cost-sharing range.
♦ It is important to not forget to list on your application your social security benefits. It is better to get the most accurate premium tax credit calculation up front rather than be surprised when your file your taxes.
Whose income to include in your estimate?
For most people, a household consists of the tax filer, their spouse and their tax dependents, including those who don't need coverage.
A household's MAGI is the sum of the MAGI of each household member who is required to file taxes. Read more about households.
♦ The requirement to file taxes, not whether someone actually files taxes, determines whether an individual's income must be included in a household's MAGI.
Sometimes a dependent doesn't earn enough to be required to file taxes but the dependent files a tax return to get a refund of taxes withheld from his or her paycheck. In this situation, the dependent's income would NOT count toward the household's MAGI.
♦ The tax law passed at the end of 2017 changed filing requirements. It raised the earned income level. However, this change sunsets after 2025 (disappears / changes).
Child's income — you count your child's income if it is enough earnings to require him or her to file taxes.
♦ A child who has only earned income must file a return only if the total is greater than the standard deduction.
For 2022 income, the threshold is $12,950 for earned income.
Below the threshold, you may still want to file a return to recover any taxes that were withheld.
• Unearned income must be greater than $1,100. Unearned income comes from interest, dividends, capital gains, etc.
What this means is that more families can exclude a dependent's earning from their household income, thereby possibly qualifying for Medicaid or a larger premium tax credit.
Deductions from paycheck that do NOT count
Among the most common are health care expenses such as insurance premiums or health savings account contributions, retirement account contributions, and flexible spending accounts for medical or child care expenses.
Since income set aside for these purposes is not taxed, it does not count toward a household's MAGI.
Income that is NOT taxed but counts
Some forms of income that are non-taxable or only partially taxable are included in MAGI. Tax-exempt interest is an example. This could be interest on certain types of municipal bonds as well as exempt-interest dividends from mutual fund distributions.
The application will ask you if you have any deductions. Deductions will help to reduce your income and in most cases lead to larger premium tax credits.
• Deductions will be reported when you file federal income taxes. List things that you know you will be taking when you file taxes.
• Don’t list things like charitable contributions or home mortgage interest. They can be deducted on your itemized federal income tax return.
• Don’t enter a cost that you already took into account if you report any net self-employment or rental income.
• Contributions to Roth individual retirement accounts would not be deductible since they are made after taxes are paid.
→ Some deductions will no longer count due to the tax law passed at the end 2017.
• Alimony will no longer be deductible after January 1, 2019.
• Moving expenses will no longer be deductible, except for the Armed Forces. This provision will sunset after 2025.
|Student loan interest that you pay|
|Tuition and fees|
|Educator expenses if you are a teacher and pay for supplies yourself|
|Moving expenses (January 1, 2019 eliminated)|
|Health savings account contributions|
|Alimony - that you pay (January 1, 2019 eliminated)|
|Self-employed health insurance deduction|
|Traditional IRA contributions - if you do not have a retirement plan at your work|
|Tuition costs for school if you pay for the costs out-of-pocket|
♦ The income items below may be included in your estimate. They are items the IRS expects everyone would report.
→ The tax law passed at the end of 2017 has affected some of what is to be counted as income.
• Alimony will no longer be counted after January 1, 2019.
• Student loan debt that is forgiven due to death or disability will no longer count after January 1, 2019. This provision will sunset after 2025.
|Wages||salary, bonuses, commissions, severance pay, unemployment benefits (do not include anything taken out for things like health insurance, heath savings accounts, flexible spending accounts, retirement plans, child care)|
|Self-employed income||Income after expenses, you will need to describe your business, keep at least a simple ledger as proof|
|Alimony||Annuities||Awards||Back pay||Capital gains|
|Cash income||something that is commonly overlooked|
|Dividends||Estate income||Trust income||Tips & gratuities||Farm income|
|Foreign income||If the Income was not already taxed|
|Gambling winnings||Hobby income||Jury duty fees||Military pay||Military pension|
|Investment income||Interest, Dividends, Capital Gains|
|IRA distributions||Not Roth IRA distribution|
|Pensions||IRA and 401K withdrawals, do not include Roth distributions|
|Railroad retirement||Tier I (portion may be reportable), Tier II|
|Rental income||Net income (after expenses)|
|Social Security benefits||Social Security disability income|
|Unemployment benefits||Including unemployment as a result of COVID-19|
|Income normally NOT reported when filing taxes|
|Stimulus Payment as result of COVID-19 emergency|
|Supplemental Security Income (SSI)|
|Child support||Child support that you pay can be a deduction|
|Source: Internal Revenue Service — Income Quick Reference Guide|