You qualify for subsidies if you pay more than 8.5% of your household income toward health insurance. In 2021, premiums for new enrollees have averaged about $30 less per person per month, or 25%.
What income is used to calculate healthcare subsidies?
The Marketplace uses an income number called modified adjusted gross income (MAGI) to determine eligibility for savings. It’s not a line on your tax return. See what’s included in MAGI and how to estimate it.
Is healthcare subsidy based on gross income?
Under the Affordable Care Act, eligibility for Medicaid, premium subsidies, and cost-sharing reductions is based on modified adjusted gross income (MAGI). For most enrollees, it’s the same as their adjusted gross income (AGI) from Form 1040.
Are Obamacare subsidies based on gross income or taxable income?
ACA premium subsidies are based on modified adjusted gross income (MAGI), but the calculation for it is specific to the ACA (and different from the general MAGI rules). For most people, ACA-specific MAGI is the same as adjusted gross income, or AGI (from Form 1040).
What is the maximum income to qualify for free health care?
In general, you may be eligible for tax credits to lower your premium if you are single and your annual 2020 income is between $12,490 to $49,960 or if your household income is between $21,330 to $85,320 for a family of three (the lower income limits are higher in states that expanded Medicaid).
What is the maximum income to qualify for the Affordable Care Act?
This means an eligible single person can earn from $12,880 to $51,520 and qualify for the tax credit. A family of three would qualify with income from $21,960 to $87,840. The range would be $26,500 to $106,000 for a family of four.
How do you calculate income for Obamacare 2020?
If it’s not on your pay stub, use gross income before taxes. Then subtract any money the employer takes out for health coverage, child care, or retirement savings. Multiply federal taxable wages by the number of paychecks you expect in the tax year to estimate your income.
How is household income calculated?
Add all gross income Because household income is the total sum of all gross income, the final step is to add all the annual income together. This will give you the total annual household income.
Will I get penalized if I underestimate my income for Obamacare?
It’s normal for most people to overestimate or underestimate their ACA premium tax credit by a small amount. There’s no added penalty for taking extra subsidies. The difference will be reflected in your tax payment or refund.
How do I calculate my gross income?
Simply take the total amount of money (salary) you’re paid for the year and divide it by 12. For example, if you’re paid an annual salary of $75,000 per year, the formula shows that your gross income per month is $6,250.
What is counted as income for Medicaid?
How is Income Verified? Medicaid applicants generally have to provide documentation of their monthly income (earned and unearned) with their Medicaid application. Examples include copies of dividend checks, social security check or award letter, pay stubs, alimony checks, and VA benefits check or award letter.
How do I figure adjusted gross income?
The AGI calculation is relatively straightforward. Using the income tax calculator, simply add all forms of income together, and subtract any tax deductions from that amount. Depending on your tax situation, your AGI can even be zero or negative.
How are Obamacare subsidies calculated?
Income, household size and affordable coverage Under the Affordable Care Act, eligibility for subsidized health insurance is calculated using a household’s Modified Adjusted Gross Income (MAGI). It’s just used as a benchmark for determining affordable coverage and available subsidy amount.
What’s included as income
It will be necessary for you to estimate your family income for the purpose of filling out a Marketplace application for the first time this year.
- The discounts you receive via the marketplace are calculated based on your predicted household income for the year in which you seek coverage, not your income from the previous year. You must create the most accurate estimate possible in order to qualify for the appropriate amount of savings. You will be asked about your current monthly income, followed by a question about your annual income.
Whose income to include in your estimate
Households are typically comprised of the tax filer, their spouse (if they have one), and their tax dependents, which may include individuals who do not require coverage. The Marketplace takes into account the expected income of all members of the household. Learn more about who is counted as a member of a Marketplace family.
What income is counted
When determining whether or not a person is eligible for savings, the Marketplace employs a statistic known as modified adjusted gross income (MAGI). It is not a line item on your income tax form. The chart below illustrates the most prevalent forms of income and whether or not they are included in MAGI. If you anticipate income categories that are not included or if you have more questions, consult the IRS’s definition of what constitutes income.
|Income type||Include as income?||Notes|
|Federal Taxable Wages (from your job)||Yes||If your pay stub lists “federal taxable wages,” use that. If not, use “gross income” and subtract the amounts your employer takes out of your pay for child care, health insurance, and retirement plans.|
|Self-employment income||Yes||Include “net self-employment income” you expect — what you’ll make from your business minus business expenses.Note:You’ll be asked to describe the type of work you do. If you have farming or fishing income, enter it as either “farming or fishing” income or “self-employment,” but not both.|
|Unemployment compensation||Yes||Include all unemployment compensation that you receive from your state. VisitCareerOneStop’s Unemployment Benefits Finderfor more information about unemployment in your state.|
|Social Security||Yes||Include both taxable and non-taxable Social Security income. Enter the full amount before any deductions.|
|Social Security Disability Income (SSDI)||Yes||Butdo notinclude Supplemental Security Income (SSI).|
|Retirement or pension Income||Yes||Include most IRA and 401k withdrawals. (See details on retirement income inthe instructions for IRS publication 1040).Note:Don’t include qualified distributions from a designated Roth account as income.|
|Alimony||Depends||Divorces and separations finalizedbeforeJanuary 1, 2019:Includeas income. Divorces and separations finalizedon or afterJanuary 1, 2019:Don’t includeas income.|
|Investment income||Yes||Include expected interest and dividends earned on investments, including tax-exempt interest.|
|Rental and royalty income||Yes||Use net rental and royalty income.|
|Excluded (untaxed) foreign income||Yes|
|Supplemental Security Income (SSI)||No||Butdo includeSocial Security Disability Income (SSDI).|
|Veterans’ disability payments||No|
|Proceeds from loans (like student loans, home equity loans, or bank loans)||No|
|Child Tax Credit checks or deposits (from the IRS)||No|
Do I have to include the income of persons in my family who do not require insurance in my calculations? Yes. The discounts offered by the marketplace are based on the whole household income, not just the income of the household members who require insurance. You must mention any members of your household who have health insurance, whether it is via their employer, a plan they purchased themselves, a governmental program such as Medicaid, CHIP, or Medicare or through another source, on your application, as well as their income.
- Is it possible for me to deduct any expenses from my income?
- Learn about these deductions as well as how to submit them to the IRS.
- For example, if you work seasonally, have an erratic work schedule, or have just had a job change, it might be difficult to forecast your income.
- We’ll give you a ballpark figure for the year.
- It’s critical to take action as soon as possible since your coverage options and savings may have changed.
Report income changes to the Marketplace
Once you obtain Marketplace health insurance, it is critical that you notify the Marketplace of any changes in your income as quickly as possible. In the event that you fail to record these changes, you may lose out on potential savings or be forced to pay money back when you submit your federal tax return for the year. How to submit an update to the Marketplace is covered in this tutorial.
How to estimate your expected income and count household members
As part of the health insurance application process, as well as several of the resources on this page, you’ll be required to estimate your projected income. There are two things you should be aware of:
- In order to qualify for Marketplace discounts, you must have estimated household income for the year in which you seek coverage, not income from the previous year
- Income is calculated for you, your spouse, and anybody else who will be claimed as a tax dependant on your federal tax return (if thedependents arerequired to file). It is necessary to include their salary even if they do not require health insurance coverage. See who should be included in your home for further information.
How to make an estimate of your expected income
First, determine your household’s adjusted gross income (AGI), which may be found on your most recent federal income tax return (Step 1).
You don’t have a recent AGI report? Look at another method of estimating your revenue. Step 2: Increase your AGI by including the following types of income, if you have any:
- In addition to tax-free overseas income, tax-free social security benefits (including tier 1 railroad retirement benefits) and tax-free interest are also available to you.
Don’t include Supplemental Security Income in your calculations (SSI). Step 3: Make any necessary adjustments to your estimate to account for any changes you anticipate. Keep in mind the following considerations for all members of your family:
- Pay hikes expected
- New jobs or other employment adjustments, such as changes to work schedules or self-employment income
- And other factors. Modifications in income derived from other sources, such as Social Security or investments
- Changes in your household, such as the addition or removal of dependents. The addition or removal of a dependant can have a significant impact on your finances.
You should now have an idea of how much money you may anticipate to make.
More details on reporting income and household members
- Check to see who should be included in your family
- What income should be included in your estimate
- And more.
Estimating unpredictable income
If you’re jobless, self-employed, on commission, or have a work schedule that fluctuates frequently, it’s difficult to anticipate your income in advance. If it is difficult to anticipate your income, base your estimate on your previous experience, current trends, what you know about potential changes at your company, and other relevant facts to make an educated guess. If you are new to the job, talk to individuals who work in the same industry or for the same firm to learn about their experiences.
Learn more about how to predict your projected income if you’re in the following situations:
More answers: Incomehousehold size
How can I upload papers to the Marketplace in order to validate my earnings? If the Marketplace asks you to provide pay stubs, self-employment records, or other documentation to prove your income, follow these steps to upload the necessary papers to the Marketplace. What exactly is “MAGI,” and do I need to know what it is for? In order to assess the services and discounts you are eligible for through the Health Insurance Marketplace, a statistic known as Modified Adjusted Gross Income (MAGI) is used.
MAGI is not a line on your federal tax return; it is a separate calculation.
What if I don’t know how much money my family earned in the most recent quarter of Adjusted Gross Income?
- You should be able to locate this amount on your pay stub. If your gross income before taxes is not included on your pay stub, use that amount instead. Add back whatever money your company withholds for health insurance, child care, or retirement savings
- Then remove the remainder. Estimate your income by multiplying your federal taxable wages by the number of paychecks you expect to receive throughout the tax year. Examine whether other sources of household income should be considered
- Make adjustments to all income levels to account for projected changes during the year
Normally, this amount may be seen on your pay stub. If your gross income before taxes is not shown on your pay stub, use that amount. After that, deduct any money that your company withholds for health insurance, child care, or retirement savings; and Using the number of paychecks you anticipate receiving during the tax year, multiply federal taxable wages by the number of paychecks you expect to get. Examine whether other sources of family income should be included; and To account for anticipated changes during the year, adjust all revenue numbers.
2022 Obamacare subsidy calculator
The fact that your premiums could end up being significantly lower than you expect, thanks to the generous subsidies provided by the Affordable Care Act and temporarily enhanced under the American Rescue Plan, may be comforting if you’re concerned about the cost of health insurance premiums in the exchange/marketplace. The deadline for enrolling in health insurance for 2022 coverage was January 15 in practically every state. Individuals who have experienced a qualifying life event that necessitates the use of a special enrollment period will be eligible to enroll after January 15 if they qualify.
As of early 2021, 86 percent of the 11.3 million people who had enrolled in coverage through the exchanges were getting premium subsidies, according to the ACA.
Despite this, over two-thirds of uninsured Americans are unaware of the financial aid that is available to help them afford health insurance.
Here are a few of other brief facts concerning Obamacare subsidies:
- Because the subsidies are tax credits, you can choose to pay the full cost of your coverage (bought via the state exchange in your state) each month and then claim your tax credit when you file your tax return. However, unlike other tax credits, subsidies may be claimed at any time of the year and are paid directly to your health insurer to help reduce the cost of your health insurance coverage. When you have an anticipated household income that does not exceed 400 percent of the preceding year’s poverty level (as determined by an ACA-specific computation), premium subsidies are usually available. However, this restriction does not apply for the years 2021 and 2022. The American Rescue Plan was established in response to the fact that a single individual in the continental United States would be ineligible for subsidies in 2021 if their income surpassed $51,040, and a family of four would be disqualified if their income exceeded $104,800. The American Rescue Plan, on the other hand, altered the guidelines for the years 2021 and 2022. Premium subsidies are available instead of a cap on income if the cost of the benchmark plan would otherwise exceed 8.5 percent of their ACA-specific modified adjusted gross income. On the lower end, subsidies are available in most states if your income is above 138 percent of the poverty level, with Medicaid available below that. Premium subsidies are available in states that have not yet extended Medicaid, but only if your income is at least as high as the federal poverty threshold (see chart). Unfortunately, Medicaid is not accessible below that threshold in those states unless the applicant meets tight eligibility requirements established prior to the Affordable Care Act (ie, the states that have rejected Medicaid expansion have created acoverage gap
- This is the case in 11 states as of late 2021). If a person receives unemployment compensation in 2021 and is otherwise ineligible for Medicaid, premium-free Medicare Part A, or an employer-sponsored plan that is considered reasonable, the American Rescue Plan does allow for zero-premium Silver plans to be available to them. This provision does apply to persons who would have otherwise fallen into the coverage gap if the provision had not been in place. While the Build Back Better Act stipulated that this provision would be in place until at least 2022, the future of the legislation is in doubt because the version of the law that passed the House did not get enough support in the Senate. Find out exactly how the subsidy amounts are calculated by visiting this page. However, you may just use the subsidy calculator located at the top of this page (if subsidy data are not available for your state, you can determine how much your subsidy will beusing the math outlined here). Determining whether or not a person is eligible for a subsidy is quite straightforward: You calculate your income as a percentage of the poverty level, and then determine where you fall on the sliding scale of the percentage of income you’re expected to pay for the benchmark Silver plan (which will range between 0 percent and 8.5 percent of your income, depending on your circumstances). When you see how much more than that the benchmark plan actually costs, you may subtract that amount from your subsidy, which can be applied to any metal-level plan available on the market. In the case of those who are touched by the family glitch, premium subsidies are not available
- Premium subsidy levels fluctuate from one year to the next, depending on changes in the cost of the benchmark plan in each location. Premium subsidies continue to be significantly higher in most of the country than they were in 2017, owing to the way the cost of cost-sharing reductions (CSR) has been added to silver plan premiums in most states, as well as the American Rescue Plan, which was implemented in 2017. Nevertheless, rates have reduced in several locations for the years 2019-2020-2021, and again for the year2022, and new insurers have joined some markets at cheaper prices, resulting in lesser benchmark premiums. When benchmark premiums reduce, whether as a result of the launch of new plans or a reduction in the costs of current plans, premium subsidy levels will decrease as a result of the reduction in premiums. Premium subsidies, on the other hand, will increase if the benchmark premium rises in value. Moreover, as a result of the American Rescue Plan, premium subsidy amounts for 2021 and 2022 are now far higher than they would have been otherwise
- Premium subsidies now cover the vast majority of the premiums for persons who are eligible for subsidy assistance. When it came to premium subsidies in early 2021, 86 percent of the people who were registered in exchange plans across the country received them. In addition, the subsidies covered an average of 85 percent of their premium expenditures, according to the study. This was before to the implementation of the American Rescue Plan
- Since then, an even greater number of individuals have qualified for subsidies, with the subsidies covering an even greater percentage of their expenses. It is possible that the additional subsidies will amount to thousands of dollars per month for certain people who were previously ineligible for subsidies because of the “subsidy cliff.” Others may see a much lower gain, yet it will still result in considerable savings
- For them, There are certain exceptions, such as accident supplements, adult dental/vision plans (or pediatric dental/vision plans that are marketed separately from metal coverage rather than being included in the medical plan), critical illness plans, and stand-alone prescription drug insurance (but there are free prescription drug discount plans available). Short-term health insurance is also not eligible for subsidies
- Subsidies can lower your premium significantly, but the Affordable Care Act also provides subsidies that can reduce your out-of-pocket costs when you need to use your coverage, as long as you enroll in a Silver plan, which is the most affordable option. In addition, despite the fact that the Trump administration has ceased reimbursing insurers for the costs of those cost-sharing subsidies, the benefits are still accessible to people who qualify for them. The American Rescue Plan’s improved subsidies made it easier for lower-income Americans to buy Silver plans, and this percentage grew later in the year as more people gained coverage through the exchanges.
Because the subsidies are tax credits, you can choose to pay the full cost of your coverage (bought via the state exchange in your state) each month and then claim your tax credit when you submit your tax return each year. The subsidies, however, differ from previous tax credits in that they may be used at any time of the year and are paid directly to your health insurer to reduce the cost of your coverage. Generally, premium subsidies are available if your estimated household income (determined according to an ACA-specific formula) does not exceed 400 percent of the previous year’s poverty threshold.
The American Rescue Plan was established in response to the fact that a single individual in the continental United States would be ineligible for subsidies in 2021 if his or her income surpassed $51,040; a family of four would be disqualified if their income exceeded $104,800.
Instead of a cap on income, the new rules allow for premium subsidies if the cost of the benchmark plan would otherwise exceed 8.5 percent of their ACA-specific modified adjusted gross income.
If your income is at least equal to the poverty level, however, premium subsidies are available in states that have not yet extended Medicaid.
Those receiving unemployment compensation in 2021 who are not otherwise qualified for Medicaid, premium-free Medicare Part A, or an employer-sponsored plan that is considered reasonable may be eligible for zero-premium Silver plans under the American Rescue Plan, which will be available in 2021.
While the Build Back Better Act said that this provision would be in place until at least 2022, the future of the legislation is in doubt because the version of the law that passed the House did not get enough support in the Senate; Discover the specific method by which subsidy amounts are calculated right here!
Determining whether or not a person is eligible for a subsidy is straightforward: You calculate your income as a percentage of the poverty line, and then determine where you fall on the sliding scale of the percentage of income you’re required to pay for the benchmark Silver plan (which will range between 0 percent and 8.5 percent of your income, depending on your situation).
- In the case of those who are touched by the family glitch, premium subsidies are not available; premium subsidy levels fluctuate from one year to the next, depending on changes in the cost of the benchmark plan in each region.
- However, rates have reduced in certain locations for 2019, 2020, 2021, and again for 2022, and new insurers have joined several markets with cheaper pricing, resulting in lower benchmark premiums in those years and subsequent years.
- Premium subsidies, on the other hand, will increase if the benchmark premium goes up.
- When it came to premium subsidies in early 2021, 86 percent of the people who were registered in exchange plans across the country did so.
- Prior to the implementation of the American Rescue Plan, even more people qualified for assistance, and the assistance provided covered an even greater amount of their expenses.
- Others will see a much lower boost, yet it will still result in substantial savings.
Short-term health insurance is also not eligible for subsidies; subsidies can lower your premium significantly, but the Affordable Care Act also provides subsidies that can reduce your out-of-pocket costs when you need to use your coverage, as long as you enroll in a Silver plan, which is the least expensive option.
As of early 2021, 48 percent of those who had coverage through the exchanges countrywide were getting cost-sharing subsidies; this figure climbed later in the year as the American Rescue Plan’s additional subsidies made it easier for lower-income Americans to buy Silver plans.
2022 Obamacare Subsidy Chart and Calculator
The most recent revision was made on October 27th, 2021. What resources are available to assist you in paying for health insurance and health coverage? It all depends on how much money you make. The cost of the “benchmark plan” (the second-lowest-cost silver plan on the exchange) exceeds a certain percentage of your income in 2022, with a maximum of 8.5 percent if you are eligible for Obamacare subsidies. The income cut-off criterion grows on a sliding basis based on your household’s net worth.
- Health plans for 2022 are evaluated in relation to your predicted income for 2022 as well as the benchmark plan cost.
- New participants will pay around $30 less per person per month in premiums in 2021, a 25 percent decrease from the previous year.
- If you have previously registered in an ACA plan and received a subsidy, you may be able to switch plans and get the additional savings until August 15th in the majority of states.
- For the first eight months of the year, those enrolled in health coverage through the federal exchange will have their additional subsidies automatically deducted from their premium due amount.
The bottom conclusion is that it pays to double-check your qualifying levels, regardless of your income level. You may use sites such as HealthCareInsider.com or the calculator above to find out your subsidy rate or to determine whether or not switching is the best option for your circumstances.
Learn More About Obamacare Subsidies
The bottom conclusion is that it pays to double-check your qualifying levels, regardless of your household income. HealthCareInsider.com and the calculator above may be used to find out your subsidy rate and determine whether switching plans is the best option for you.
Previous 2021 Total Household Income for Maximum ACA Subsidy
|Household Size||Household Income|
Alaska and Hawaii are the only two states that have greater income restrictions, and you can find them here. What Will Be Different About Obamacare Subsidies in 2022? The American Rescue Plan completely transformed the year 2022. (with the possibility of this change being made permanent in the near future). The American Rescue Plan Act (ARP) of 2021 made the Affordable Care Act (ACA) more affordable for more Americans (ACA). How? There are three basic ways to do this: First and foremost, the Federal Poverty Level (FPL) income ceiling requirement was eliminated by this legislation.
- Under the ARP, the standard Silver plan will not cost you more than 8.5 percent of your yearly family income, regardless of how much money you make or how much you earn.
- Second, it doubled the amount of subsidies that those earning less than 400 percent of the federal poverty level (FPL) are eligible for.
- For the past two years, the range has been reduced to 0 percent to 8.5 percent.
- As part of its rescue efforts, the American Rescue Plan has created a Special Enrollment Period on the federal Health Insurance Exchange.
- Even if you’ve previously enrolled in a health plan, you can change your mind and enroll in a new plan in most states (or reenroll in the same one).
It has been reported by the federal government that typical premiums have reduced by around $30 per person per month on average, and that median deductibles have dropped by 90 percent, from $450 to roughly $50 per year. What You Pay for a Benchmark Silver Plan and What You Can Expect
|Income (by federal poverty level)||% of Your Income (before 2021)||% of Your Income (in 2021)|
|100% – 138%||2.07%||0%|
|138% – 150%||3.10% – 4.14%||0%|
|150% – 200%||4.14% – 6.52%||0.0% – 2.0%|
|200% – 250%||6.52% – 8.33%||2.0% – 4.0%|
|250% – 300%||8.33% – 9.83%||4.0% – 6.0%|
|300% – 400%||9.83%||6.0% – 8.5%|
|Over 400%||Not eligible||8.50%|
Internal Revenue Service, 26 CFR 601.105, irs.gov. Original source: Internal Revenue Service. Congress of the United States of America, accessed March 20, 2021. H.R. 1319 may be found at congress.gov. This page was last updated on March 20, 2021. Households with more than 8 persons will need to contribute $4,480 per person to their budget. What If Medicaid Were Used Instead of Subsidies? In most states, those who earn up to 138 percent of the federal poverty threshold are eligible for Medicaid benefits rather than ACA exchange subsidies, according to the Centers for Medicare and Medicaid Services.
- Alaska and Hawaii are the only two states with greater income restrictions, and you can find them right here.
- During the year 2022, this information – as well as certain household income numbers – are applicable to health insurance policies that will cover you and your family.
- Approximately once a year, in January, the federal poverty level income levels are updated.
- They are also employed in November, when the Affordable Care Act’s Open Enrollment Period commences.
- Your modified adjusted gross income, often known as MAGI, is the correct amount of income to submit (basically, the annual income you report on your tax return,with a few tweaks).
- No of how much money you make every year, you may still ” qualify for Obamacare.” If you earn more than the income limit, you will simply not be eligible for monthly premium assistance benefits.
- Medicaid, on the other hand, is likely to be available in the majority of states.
2021 Total Household Income for Minimum ACA Subsidy
|Household Size||Household Income|
Internal Revenue Service, 26 CFR 601.105, irs.gov. Original source: Internal Revenue Service US Congress, accessed on March 2021. Congressional Research Service (Congress.gov): HR 1319 This page was last updated on March 20, 2021 A $4,480 per person increase is required for households with more over 8 members. Would Medicaid be a better alternative to government assistance? Those earning up to 138 percent of the federal poverty line are eligible for Medicaid benefits rather than ACA exchange subsidies in the majority of states.
- Income standards for Alaska and Hawaii are greater than those for the rest of the country; you can find them here.
- For health insurance policies that cover you and your family during the year 2022, the information in this section – as well as these household income numbers – will be useful.
- During the month of January, the federal government releases new poverty statistics.
- Also in November, when the Affordable Care Act’s Open Enrollment Period begins, they are used to enroll individuals in health insurance coverage.
- Your MAGI (modified adjusted gross income) is the correct income to submit (basically, the annual income you report on your tax return,with a few tweaks).
- ” Obamacare” is still available to all people regardless of their income.
- If your household’s income is less than 100 percent of the federal poverty line, you will not be eligible for premium tax credits (often known as “Obamacare subsidies”).
Medicaid, on the other hand, is likely to be available in most states to you. It’s critical to apply directly to your state’s Medicaid program if you want to learn more.
How Is Income Calculated for Health Insurance Subsidy Eligibility?
MAGI is used to assess whether or not a person is eligible for ACA premium subsidies, but it is an ACA-specific computation that varies from other forms of MAGI. kate sept2004 / courtesy of Getty Images. For those who purchase their own health insurance in the United States (as opposed to those who receive coverage through an employer or through a government-run program such as Medicare or Medicaid), you’re probably aware of the premium subsidies (premium tax credits) established by the Affordable Care Act (ACA).
kate sept2004 / courtesy of Getty Images.
Because of this, the Affordable Care Act (ACA) refers to “modified adjusted gross income” (MAGI) when describing how income will be computed for premium subsidy eligibility. This is valid terminology because the computation is a modification of adjusted gross income. However, the idea of MAGI was already in use for other tax-related purposes, and it is computed in a slightly different way, which has led to some misunderstanding. The most essential thing to take away from this is that MAGI for the purpose of determining eligibility for premium subsidies (and, in many circumstances, Medicaid eligibility) is not the same as the MAGI definition that you may have already known in the past.
However, even within this group, the computation differs slightly between eligibility for Medicaid and CHIP vs eligibility for financial help with commercial health insurance obtained via the exchange.
Premium Subsidies, Cost-Sharing Reductions, Medicaid, and CHIP
ACA-specific When customers search for coverage through their state’s health insurance exchange, MAGI is used to assess eligibility for premium subsidies (the subsidy is essentially a tax credit that can be utilized immediately or on your tax return) and cost-sharing reductions. It is also used to determine whether or not a person is eligible for CHIP and Medicaid.
How Does the Calculation Work?
In case you’re not familiar with the notion of modified adjusted gross income (MAGI), it’s important to understand that it requires you to start with your adjusted gross income and then subtract different items from it, such as deductions for student loan interest and IRA contributions. (Please keep in mind that AGI may be found on your tax return; AGI is on line 11 on the 2020 Form 1040, although the location on the form can vary from year to year.) However, when it comes to ACA-specific MAGI, you don’t have to subtract either of those sums—or the vast majority of the other amounts that you’d have to subtract from your income in order to calculate your standard MAGI—from your gross income.
As an alternative, the ACA-specific MAGI calculation starts with adjusted gross income and subtracts only three items from it:
- Line 6a minus Line 6b on the 2020 Form 1040 denotes nontaxable Social Security income
- Line 2a denotes tax-free interest on the 2020 Form 1040 denotes tax-free interest on the 2020 Form 1040
- And Line 2b denotes tax-free interest on the 2020 Form 1040 denotes tax-free interest on the 2020 Form 1040. Form 2555 is used to report foreign earned income and housing expenditures for Americans who are stationed abroad.
A large number of people have incomes that are entirely accounted for by these three items, which means that their ACA-specific MAGI is identical to the income shown on their tax return. However, if you have amounts on your tax return for any of those three categories, you must add them to your AGI in order to estimate your MAGI for the purpose of determining your eligibility for premium subsidies and cost-sharing reductions. When determining Medicaid and CHIP eligibility, some amounts are either removed or tallied in a specified way, as follows:
- When it comes to Medicaid eligibility, qualified lottery winnings and lump-sum income (including inheritances, tax refunds, and other similar sources) are only counted in the month in which they are received if the amount is less than $80,000
- Larger amounts are prorated over a longer timeframe (Medicaid eligibility is based on monthly income
- Premium subsidy eligibility is based on annual income, so a lump-sum payment would affect the entire year’s subsidy eligibility, whereas it would only affect a single Certain payments to American Indians and Alaska Natives are subtracted if they were included in AGI
- Scholarships, awards, and fellowship grants are subtracted if they were included in AGI (as long as they were used for education expenses rather than living expenses)
- And Certain payments to American Indians and Alaska Natives are subtracted if they were included in AGI
- And Certain payments to American Indians and Alaska Natives are subtracted if they were included in AGI. It is not included in MAGI the nominal amounts obtained as a result of government subsidies by parent mentors who assist other families in enrolling in health insurance.
Other MAGI Factors to Keep in Mind
However, depending on whether the family is applying for Medicaid/CHIP or premium subsidies, there are varying criteria for how a child’s income is tallied against the family’s overall MAGI. The filing of a joint tax return is required if a married couple wishes to apply for premium subsidies in the exchange (or to claim them on their tax return after paying the full amount for a plan obtained through the exchange). However, if a married couple who lives together applies for Medicaid, their entire household income is considered as a single entity, regardless of how they file their tax returns.
Premium subsidies are a type of tax credit.
If your income is consistent from one year to the next, you may make a reasonable estimate of your modified adjusted gross income (MAGI) for the upcoming year using your previous year’s tax return.
You can submit your updated income to the exchange after the year has begun, and the exchange will make real-time adjustments to your premium subsidy amount if you see that your actual income is considerably different from what you expected (or switch you from a private plan to Medicaid or vice versa, if your changed income results in a change in Medicaid eligibility status).
If it turns out that the subsidy amount that was paid on your behalf during the year was insufficient, the Internal Revenue Service will reimburse you for the shortfall when you file your tax return.
In the instructions for Form 8962 (which must be included with your tax return in the event that you were paid a premium tax credit during the year or in the event that you want to claim the tax credit on your tax return), the specifics of how to conduct a premium tax credit reconciliation are explained.
The IRS required customers who earned more than this amount to reimburse the whole amount of their premium tax credit to the IRS when they filed their tax return.
However, the American Rescue Plan has decided to forego the return of surplus subsidies until 2020.
In addition, the bill reduced the income ceiling for subsidy eligibility in 2021 and 2022, effective January 1, 2021.
However, Congress may make the abolition of the income ceiling for subsidy eligibility permanent; this is something that will be considered in the autumn of 2021.
How Saving Money Might Make You Eligible for Subsidies
In light of the way the ACA-specific MAGI is computed, there are various steps you may take to lower your MAGI and thereby qualify for a greater subsidy than you would otherwise qualify for (if the income limit for subsidy eligibility is allowed to take effect again in 2023, this approach will once again be particularly important in order to avoid the “subsidy cliff” when MAGI exceeds 400 percent of the poverty level).
It should be noted that, for the purpose of determining eligibility for premium subsidies, the poverty level statistics from the previous year are always utilized, because open enrollment for a given year’s coverage is completed before the poverty level numbers for that year are decided (for Medicaid and CHIP eligibility, current poverty level numbers are used, since enrollment in those plans continues year-round).
As a result, eligibility for premium subsidies in 2022 will be determined by how the enrollee’s expected 2022 income compares to the federal poverty line figures for 2021.
However, the higher your modified adjusted gross income (MAGI), the smaller your subsidy amount will be.
If your employment situation and health insurance plan allow it, it may be possible for you to save a significant amount of money in a retirement account (which includes traditional IRAs, but also things like 401(k)s, SEP-IRAs, SIMPLE-IRAs, solo 401(k)s, which tend to have higher contribution limits) and/or a health savings account, thereby lowering the amount of income you report on your tax return.
This might result in you receiving a subsidy when you would otherwise have been required to pay the whole cost of your coverage, or it could result in you receiving a greater subsidy than you would have gotten if you had not made the pre-tax payments to your account.
To be clear, keep in mind that donations to items like an HSA and conventional IRAs (but not contributions to a Roth IRA because those contributions are not pre-tax) will lower your ACA-specific MAGI, even if those contributions do not impact your other forms of MAGI calculations.
Calculating the Health Insurance Subsidy
I read your articles about the health insurance changes for 2014 and had a few of follow-up questions. Could you perhaps respond to them? What is the formula for calculating the premium subsidy? Is there a difference in subsidies based on age and geography, or is it solely dependent on income? And when do I get the opportunity to enroll in a policy? If you are considering purchasing health insurance through the exchanges, the Kaiser Family Foundation’s subsidy calculator can assist you in estimating how much you might be eligible to receive as a subsidy.
- Premiums will also vary depending on where you live, and details about your state’s exchange will be accessible in October (at which point you will be able to sign up for a coverage that will take effect on January 1).
- If your employer provides coverage that is determined to be “affordable,” you will not be eligible for a subsidy (for the definition, seeGet Ready for Obamacare).
- In order to be eligible for subsidies, persons must have a modified adjusted gross income that is 100 percent to 400 percent of the federal poverty threshold, which ranges from around $11,500 to $46,000 for an individual and $24,000 to $94,000 for a family of four.
- It is also determined by the size of your income how much you will have to pay in insurance premiums.
- For example, a family of four with a household income of $60,000 earns approximately 255 percent of the federal poverty threshold.
- The benchmark insurance is the second-lowest-cost silver plan available in your region, and the premiums for that policy will vary depending on where you live and how old you are when you buy it.
- An investigation conducted by the Kaiser Family Foundation revealed the cost of that benchmark policy in 17 states and the District of Columbia (where the information is currently available).
For a family of four with two individuals in their 40s living in Los Angeles, the benchmark, second-to-lowest-cost silver coverage costs $763 per month, according to Kaiser Family Foundation.
It is possible, however, to transfer that credit to any other silver insurance, or to a bronze, gold, or platinum policy.
The income, age, and size of the family may all make a significant impact in the computation.
For the standard insurance, which costs $1,800 per year ($150 per month), they would be required to pay no more than 6 percent of their income.
According to the Kaiser analysis, the lowest-priced bronze plan they could purchase would cost $797 per month; if they picked that plan, they would owe no more premiums once the tax credit was taken into consideration.
A cost-sharing subsidy would be available to them since they earn less than 250 percent of the federal poverty line. However, they would only be eligible for this subsidy if they purchased a silver plan, which would cut co-payments and other out-of-pocket costs.
Modified Adjusted Gross Income under the Affordable Care Act – UPDATED WITH INFORMATION FOR COVID-19 POLICIES
Part of the Labor Center’sCovid-19 Series: Resources, Data, and Analysis for California, this publication is available for purchase. Originally published in July 2014; most recent revision in March 2021 Eligibility for income-based Medicaid and subsidized health insurance through the Healthcare Marketplaces is determined by a household’s Modified Adjusted Gross Income, which is computed under the Affordable Care Act (MAGI). The definition of MAGI under the Affordable Care Act, as well as the Internal Revenue Code and federal Medicaid rules, is presented in the table below.
This publication is a summary of applicable federal rules; it does not provide customized tax or legal advice.
Modified Adjusted Gross Income (MAGI) =
- Wages, salaries, tips, and so forth
- Interest that is taxable
- Pension, annuity, or IRA distributions, as well as Social Security income, are subject to taxation. Profit from a business, agricultural profit, capital gain, and other profits (or losses)
- Compensation for unemployment
- Dividends on a regular basis
- Alimony received as a result of agreements reached before to 2019
- Rental real estate, royalties, partnerships, S-corporations, trusts, and other types of investments are available. Refunds, credits, or offsets of state and local income taxes that are deductible
- Other sources of income
- Self-employment costs
- Student loan interest deduction
- IRA deduction (traditional IRAs)
- And other deductions Moving fees for military personnel who are currently on active duty
- Early withdrawal of money is subject to a penalty. Deduction for health savings accounts
- Alimony received as a result of agreements reached before to 2019
- Reserve members, performing artists, and government employees who work on a fee-basis are exempt from some business expenditures. Expenses for educators
Please go to the IRS website for further information on the specific requirements for each of the income and deduction categories listed above. Do not include any disability benefits from the Veterans Administration, workers’ compensation, or child support received. When calculating AGI, pre-tax contributions are not included because they are already subtracted from W-2 wages and salaries. Examples of pre-tax contributions include those for child care, commuting, employer-sponsored health insurance, flexible spending accounts, and retirement plans such as 401(k) and 403(b).
- Foreign earned incomehousing expenditures for Americans living abroad (Form 2555)
- Social Security payments that are not taxable (Line 6a minus Line 6b of Form 1040)
- Tax-exempt interest (Line 2a of Form 1040)
- Non-taxable Social Security benefits (Line 6a minus Line 6b of Form 1040)
- Income earned by American Indians and Alaska Natives via dividends, payments, ownership interests, real property usage rights, and student financial help, among other sources
Modified Adjusted Gross Income and COVID-19 relief policies
The following common benefits or sources of assistance offered during the COVID-19 pandemic are considered in the calculation of MAGI for the purpose of assessing eligibility for health insurance program coverage. On March 19, 2021, the benefits and sources of help that are most often used will be included in this table, along with specific elements of government laws adopted in response to the COVID-19 epidemic. This paper does not constitute individual tax or legal advice. If you need help figuring your MAGI, you can turn to the Health Insurance Marketplace in your state, your state Medicaid agency, or a legal or tax consultant.
Medicaid eligibility is generally determined by modified adjusted gross income (MAGI) for parents and childless adults under the age of 65, children, and pregnant women, but not for individuals who qualify because they are elderly, blind, or disabled. 26 CFR 1.36B-1(e)(2), 42 CFR 435.603, and other regulations (e)
Supplemental Security Income (SSI), which should be omitted from the definition of “Social Security benefits,” is included in the definition of “Social Security benefits.”
Amount of self-employment tax that is deductible; SEP, SIMPLE, and eligible retirement plans; and health insurance deduction. See IRS Publication 974 for more information on computing the deduction for tax families who also get premium tax credits under the Affordable Care Act. Supplemental Security Income (SSI), which should be omitted from the definition of “Social Security benefits,” is included in the definition of “Social Security benefits.”
Affordable Care Act Estimator Tools
Parents and childless people under age 65, children, and pregnant women are all eligible for Medicaid based on their modified adjusted gross income (MAGI), however those who are elderly, blind, or crippled are not eligible based on their MAGI 36B-1(e)(2) of the Code of Federal Regulations (CFR) 425.603 (e) Supplemental Security Income (SSI), which should be excluded from the definition of “Social Security benefits,” is included in the term “Social Security benefits.” Amount of self-employment tax that is deductible; SEP, SIMPLE, and qualifying plans; and the health insurance deduction.
More information on computing the deduction for tax families that also get ACA premium tax credits may be found in IRS Publication 974.
Given that these calculators only give an estimate of your tax liability, you should not rely on them to provide a precise computation of the information you will disclose on your tax return. When making judgments about your tax position, you should use these estimators merely as a reference to help you make the best option possible. Using thePremium Tax Credit Vary Estimator, you may get an idea of how your premium tax credit will change if your income or family size changes over the year. There is no way for this estimating tool to notify your Marketplace of any changes in conditions.
Please be careful to report any changes immediately to the Marketplace, since they may have an impact on both your insurance coverage and your final credit when you submit your federal tax return.
This tool can only provide you an estimate of your individual shared responsibility payment; it cannot calculate it for you.
Employee Shared Responsibility Provision Estimator can assist companies in understanding how the provision operates and when it may apply to their business operations. If you are an employer, you may use the estimator to figure out how much it will cost you to:
- Number of full-time employees, including full-time equivalent employees, in your organization. It is important to know whether you might be considered an applicable large employer, and if so, an estimate of the maximum amount of potential liability for the employer shared responsibility payment that could apply to you based on the number of full-time employees that you report if you fail to provide coverage to your full-time employees
This tool can only offer an estimate of the maximum amount of potential obligation for the employer shared responsibility payment, and it cannot determine the exact amount of liability. Taxpayers should be aware that IRS estimates are based on information they submit into the system, and that the IRS cannot authenticate precise payment amounts. If you think you could be qualified for theSmall Business Health Care Tax Credit, the Small Business Health Care Tax Credit Estimatorcan assist you in determining how much credit you might be able to receive.
With the help of this tool, you may get an estimate for the tax year 2014 and beyond. Some of the data used in computing the credit, on the other hand, are inflation-adjusted. As a result, the estimator will be unable to produce a thorough estimate for the following years.
This tool can only offer an estimate of the maximum amount of potential obligation for the employer shared responsibility payment, and it cannot determine the actual amount of liability. Due to the fact that estimates are dependent on information you provide to the system, the IRS is unable to confirm particular payment amounts. If you think you could be qualified for theSmall Business Health Care Tax Credit, the Small Business Health Care Tax Credit Estimatorcan assist you in determining how much credit you might be entitled for.
In contrast, some of the values used in establishing the credit have been adjusted to take into account increases in the cost of living.
- Individuals – Estimators for Individual Shared Responsibility Payments and Premium Tax Credits
- Individuals estimating tools for employers, including the Small Business Health Care Tax Credit and Employer Shared Responsibility Provision
It is the responsibility of the TAS, an independent body inside the Internal Revenue Service, to ensure that every taxpayer is treated fairly and that taxpayers are aware of and understand their rights.