Since a lower income results in a larger subsidy, is there anything I can do to reduce my income under ACA rules? | healthinsurance.org (2023)

You can reduce your MAGI — and thus increase your subsidy amount — with contributions to a retirement plan, HSA contributions, and self-employed health insurance premiums.

You can reduce your MAGI — and thus increase your subsidy amount — with contributions to a retirement plan, HSA contributions, and self-employed health insurance premiums.

Home > FAQs > Since a lower income results in a larger subsidy, is there anything I can do to reduce my income under ACA rules?

Q. Since a lower income results in a larger health insurance premium subsidy, is there anything I can do to lower my income as far as the exchange is concerned?

Obamacare subsidy calculator *

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A:Your best bet is to talk with an accountant. They are trained to spot places where you might be missing out on deductions and tax breaks, and the money you spend to hire one will be well spent.

That said, there are some basics to keep in mind. And we can start with the fact that the rules are a lot different from 2021 through 2025, as a result of the American Rescue Plan (ARP) and the Inflation Reduction Act. The ARP, aimed at helping Americans recover from the COVID pandemic, made premium subsidies larger and eliminated the “subsidy cliff” in 2021 and 2022, And the Inflation Reduction Act extends those provisions through 2025.

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So subsidies are available to people with income above 400% of the poverty level (the income cap for subsidy eligibility in prior years) if they would otherwise have to spend more than 8.5% of their income to purchase the benchmark plan.

This makes it less important for people to bring their ACA-specific modified adjusted gross income down to under 400% of the poverty level, as subsidies now extend well above that income level depending on the circumstances. (Older people and people in areas where health insurance is more expensive can have incomes well above 400% of the poverty level and still qualify for a subsidy, whereas younger people and people in areas where coverage is less expensive may still find that they don’t qualify for a subsidy even with an income a little above 400% of the poverty level; this chart shows some specifics that help to make this clear.)

For 2023, the open enrollment period for health insurance runs from November 1 to January 15 in most states (some state-run exchanges have different deadlines).The enrollment window applies both on-exchange and off-exchange, but premium subsidies are only available in the exchange. So if you’re subsidy-eligible (and most people are), you’ll want to make sure you sign up for coverage through the exchange during the open enrollment period.

Although the ARP and Inflation Reduction Act have made subsidies larger and more widely available, the specifics of how income is calculated under the ACA remain the same. Here’s how it works:

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 the most part (unless your income is very low, which is discussed at the end of this article), a lower MAGI will result in a larger premium subsidy.

For most people, ACA-specific MAGI is the same as adjusted gross income, or AGI (from Form 1040). But if you have any tax-exempt Social Security income, tax-exempt interest income, foreign-earned income or housing expenses for Americans living abroad, you have to add those amounts to your AGI in order to get your MAGI.

Reduce your MAGI with a retirement plan, HSA contributions, and self-employed health insurance premiums

You can reduce your MAGI by earning less money, but a lot of people prefer to look for deductions instead. Consider the available deductions on your tax return that are above the line that shows your AGI (this used to be Line 37 on the regular 1040; it’s now Line 11). If you’re not already contributing the maximum allowable amount to an individual retirement account (IRA), doing so would lower your MAGI (it has to be a traditional IRA; contributions to a Roth IRA are not tax-deductible). You and your spouse can each contribute to an IRA, further lowering your total household MAGI. Keep in mind that if you also have a retirement plan at work, the amount of deductible contributions you can make to a traditional IRA depends on your income.

(Note that the general MAGI calculations require you to add back traditional IRA contributions, but ACA-specific MAGI rules are different–your deductible traditional IRA contributions do lower your ACA-related MAGI.)

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If you have access to an employer-sponsored pre-tax retirement plan like a 401(k), you can contribute to that in order to lower your MAGI. If you’re self-employed, you can set up a self-employed retirement plan. SEP IRA, SIMPLE IRA, or Solo 401(k) are all options — talk with your accountant to see which one will work best for you, keeping in mind that these retirement plans for self-employed people have contribution limits that are potentially much higher than traditional IRAs, making them a good option if you’re trying to reduce your MAGI. Depending on your income, you may also be ableto make tax-deductible contributions to a traditional IRA.

If you have an HSA-qualified high-deductible health plan(HDHP), contributing to an HSA (health savings account) will also lower your MAGI. The maximum contribution amount in 2022 is $3,650 if your HDHP covers just yourself, and $7,300 if it also covers at least one other family member. For 2023, those contribution limits are $3,850 and $7,750, respectively. And you have until April 15 of the following year to make your contributions. So if you had HDHP coverage in 2022, you can make your 2022 HSA contributions anytime until April 15, 2023.

Self-employed people can also deduct their health insurance premiums as a means of lowering their MAGI, but it gets a bit complicated if that’s the factor that makes you eligible for a premium subsidy.

Your subsidies might go a long way towards covering the contributions you make to your IRA and HSA

To put all of this in perspective, consider a married couple, each 55 years old, with HSA-qualified health coverage and a combined household income of $80,000. Prior to the American Rescue Plan, this was well above the MAGI cap for premium subsidy eligibility ($68,960 for a household of two in 2021; based on 400% of 2020 federal poverty level numbers). Now that the ARP has been implemented, this couple would be eligible for a subsidy even with a MAGI of $80,000. But we’ll use this example to illustrate how their subsidy will increase if they make various pre-tax contributions.

Assuming they have earned income (ie, their income isn’t all from investments and capital gains), they can each contribute up to $7,000 to an IRA for 2022 ($6,000 plus a $1,000 catch-up contribution, since they’re over age 50), and they can contribute up to$7,300 to an HSA, assuming they both have coverage under an HDHP. Contributing the maximum amounts would bring their 2022 MAGI down to $58,700.

Let’s say this couple lives in Norfolk, Virginia. In 2022, with the American Rescue Plan’s subsidy enhancements in effect, they qualify for a monthly subsidy of $1,040 if their MAGI is $80,000. But if their income is $58,800, they qualify for a subsidy of $1,268 per month (in order to make contributions to an HSA, they’ll need to buy an HSA-qualified plan, the cheapest of which is about $48/month in premiums after the subsidy is applied).

That’s an extra $228 per month in subsidies, amounting to $2,736 for the year, just because they opted to make the maximum contributions to their IRAs and HSA. And that’s in addition to the normal tax advantage that goes along with those plans, in terms of not having to pay income tax on the contributions, and tax-free growth in the accounts.

Prior to the ARP, this couple would not have qualified for any subsidy at all with an income of $80,000, but would have qualified for a substantial subsidy with an income of $58,700 (not quite as large as it is under the ARP, but still very significant).

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Younger applicants get smaller subsidies, but the general concept remains the same: Contributing to a retirement account and/or HSA will result in lower health insurance premiums, as long as your MAGI stays above the lower threshold for subsidy eligibility (100% of the poverty level in states that haven’t expanded Medicaid, and 138% of the poverty level in states that have expanded Medicaid).

You have until April to make the prior year’s HSA or IRA contributions

Another thing to keep in mind about HSA and IRA contributions: You can deposit money in those accounts at any time during the year or even in the first few months of the next year, as long as you make your contributions before the tax filing deadline.

So if you enroll in an HDHP through the exchange for 2022, you have until April 15, 2023 to contribute to an IRA and/or an HSA (assuming you have an HSA-qualified health plan) and reduce your MAGI for 2022 (premium subsidies are reconciled on your tax return, so that’s when you’d be sorting out the details with the IRS in terms of the exact amount of premium subsidy you were supposed to receive during the year).

Other deductions and their impact on MAGI

There are other deductions that will also serve to reduce your MAGI, since they reduce your AGI and don’t have to be added back to calculate the ACA-specific MAGI. These include things like alimony payments (from settlements executed prior to 2019; alimony from a settlement executed in 2019 or later does not count as income), student loan interest, tuition and fees, moving expenses, and the deductible portion of self-employment taxes. The deductions that reduce AGI are found on lines 11 through 24 of Schedule 1 for Form 1040.

Itemized deductions like mortgage interest, charitable contributions, medical expenses, etc. (or the standard deduction instead) are subtracted after AGI is calculated. So they do not lower AGI and thus do not have an impact on MAGI.

What if you need to increase your MAGI to qualify for subsidies?

On the other end of the spectrum, people living in states that have not expanded Medicaid may need to increase their MAGI in order to qualify for a subsidy, since Medicaid is available in those states on a very limited basis, and premium subsidies in the exchanges are not available to households with incomes below 100% of federal poverty level (FPL).

Navigators in those states recommend that residents keep track of every penny they earn, even from infrequent jobs. Some residents have been able to cobble together enough income from a variety of sources to get above 100% of poverty, even though the income from their primary job was too low to qualify for subsidies. Things like babysitting, selling extra garden produce, handyman work, and utilizing craft fairs to market a hobby like knitting or woodworking can sometimes make the difference.

If your income is very low and the marketplace is showing that you’re not eligible for Medicaid or any financial assistance with your coverage, you’re probably in the coverage gap. This article is a good summary of how you might be able to avoid the coverage gap.

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Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

FAQs

What is the lowest income to qualify for Obamacare 2022? ›

Obamacare 2022 Income Limits.

The minimum income for a single individual in 2022 is $12,880. Any single person that has an income reported less than this will loose their Premium Tax Credits. Example: A family size of 2 is $17,420.

What is the lowest income to qualify for Obamacare 2023? ›

To get assistance under the Affordable Care Act you must earn between 100% – 400% of the poverty level. For 2023, that is $13,590-$54,360 for an individual and $27,750- $111,000 for a family of four.

How do I reduce my modified adjusted gross income? ›

Reduce your MAGI with a retirement plan, HSA contributions, and self-employed health insurance premiums. You can reduce your MAGI by earning less money, but a lot of people prefer to look for deductions instead.

What goes into modified adjusted gross income? ›

MAGI is adjusted gross income (AGI) plus these, if any: untaxed foreign income, non-taxable Social Security benefits, and tax-exempt interest. For many people, MAGI is identical or very close to adjusted gross income. MAGI doesn't include Supplemental Security Income (SSI).

What happens if I underestimate my income for Obamacare 2022? ›

You'll make additional payments on your taxes if you underestimated your income, but still fall within range. Fortunately, subsidy clawback limits apply in 2022 if you got extra subsidies.

What is the income limit for Obamacare 2022? ›

Generally, if your household income is 100% to 400% of the federal poverty level, you will qualify for a premium subsidy. 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.

What is the highest income to qualify for Medicaid 2022? ›

Income Limit in Most States

Most states — 38 and Washington, D.C. — have the same income limit of $2,523 per month for a single person for most types of Medicaid services. For a married couple, the limit increases to $5,046 in most cases.

What is the federal poverty level for 2022? ›

Federal Poverty Level (FPL)
Family size2021 income number2022 income numbers
For individuals$12,880$13,590
For a family of 2$17,420$18,310
For a family of 3$21,960$23,030
For a family of 4$26,500$27,750
5 more rows

Will I get penalized if I underestimate my income for Obamacare? ›

The amount you'll have to pay back depends on your family income. If your income is below 400% of the federal poverty level, there is a cap on the amount you'll have to pay back. However, at higher income levels, you'll have to pay back the entire excess credit, which could be a lot.

What income is used for ACA subsidies? ›

Your adjusted gross income (AGI) on your federal tax return. Excluded foreign income. Nontaxable Social Security benefits (including tier 1 railroad retirement benefits)

Do Roth withdrawals count as income for Obamacare? ›

Do Roth IRA distributions count as income for Obamacare? Roth IRAs are different. Qualified withdrawals from a Roth IRA are not considered income. For more information, see IRS Publication 590.

Does ObamaCare use AGI or magi? ›

The Heath Insurance Marketplace uses an income figure called Modified Adjusted Gross Income (MAGI) to determine the programs and savings you qualify for. For most people, it's identical or very close to Adjusted Gross Income (AGI). MAGI is not a line on your federal tax return.

What income is included in MAGI for Medicare premiums? ›

MAGI is adjusted gross income (AGI) plus these, if any: untaxed foreign income, non-taxable Social Security benefits, and tax-exempt interest.

What is the difference between AGI and modified AGI? ›

Modified Adjusted Gross Income (MAGI) in the simplest terms is your Adjusted Gross Income (AGI) plus a few items — like exempt or excluded income and certain deductions. The IRS uses your MAGI to determine your eligibility for certain deductions, credits and retirement plans. MAGI can vary depending on the tax benefit.

Is Social Security income counted in Magi? ›

Social Security income includes Social Security Disability Insurance (SSDI), retirement income, and survivor's benefits. These forms of income are counted in MAGI, even when not taxable.

How do I avoid paying back my ACA subsidy? ›

You can avoid having to repay your ACA subsidies by letting your health exchange know about any changes in your income or family composition during the year. This way, your subsidies can be adjusted during the year to reflect your actual income.

What is the maximum subsidy for Obamacare? ›

Most people are eligible for subsidies when they earn 100% – 400% of the FPL.
...
Obamacare Subsidy Eligibility.
Household size100% of Federal Poverty level (2021)400% of Federal Poverty Level (2021)
1$12,880$51,520
2$17,420$69,680
3$21,960$87,840
4$26,500$106,000
4 more rows
21 Jan 2022

Do I have to pay back Covered California subsidy? ›

Overview. Taxpayers who received California Premium Assistance Subsidy (subsidies) for health coverage in 2021 may have to pay back some or all of the amount received when filing their 2021 tax return.

Do I have to pay back the premium tax credit in 2022? ›

For the 2022 tax year, you must repay the difference between the amount of premium tax credit you received and the amount you were eligible for. There are also dollar caps on the amount of repayment if your income is below 4 times the poverty level.

What is 400% of the poverty level? ›

Percentages Over 2022 Poverty Guidelines
Family Size100%400%
1$13,590$54,360
7$41,910$167,640
8$46,630$186,520
For each additional family member$4,720$18,880
5 more rows

Will the subsidy cliff come back in 2023? ›

But the Inflation Reduction Act, which was signed into law in August 2022, extends the ARP's subsidy enhancements through 2025. This means the subsidy cliff will not return until 2026, and the subsidies will continue to be larger than they were prior to the ARP.

What's the highest income to qualify for Medicaid? ›

Federal Poverty Level thresholds to qualify for Medicaid

The Federal Poverty Level is determined by the size of a family for the lower 48 states and the District of Columbia. For example, in 2022 it is $13,590 for a single adult person, $27,750 for a family of four and $46,630 for a family of eight.

Which state has highest income limit for Medicaid? ›

The state with the highest Medicaid income limit is Alaska, where households of eight people must have a maximum income of less than $77,526. Alaska Medicaid income limits also include the highest limit for households of one person, $22,597. Read on to find out all the Medicaid income limits by state.

Does Medi-Cal check your bank account? ›

Furthermore, a Medicaid agency can ask for bank statements at any time, not just on an annual basis. An important note: For long-term care Medicaid, there is a 60-month look back period (30-months in California).

What is 75 of the federal poverty level? ›

For comparison purposes, the federal benefit rate for SSI is about 75% of the FPL for one person. In 2022, the federal benefit rate (and SSI payment) is $841 per month.

What is 200% of the federal poverty guidelines? ›

Household Size150% of HHS Poverty Guidelines*200% of HHS Poverty Guidelines*
1$20,385$27,180
2$27,465$36,620
3$34,545$46,060
4$41,625$55,500
5 more rows
19 Jan 2022

What is 300% of the federal poverty level? ›

48 Contiguous States and D.C.
Persons in Household48 Contiguous States and D.C. Poverty Guidelines (Annual)
100%300%
1$13,590$40,770
2$18,310$54,930
3$23,030$69,090
6 more rows

What happens if my income changes with Obamacare? ›

These changes — like higher or lower income, adding or losing household members, or getting offers of other health coverage — may affect the coverage or savings you're eligible for. After you finish applying or enrolling, you may be asked to submit documents to confirm your income.

Why did my ACA subsidy decrease? ›

The subsidy amounts fluctuate from one year to the next, due to changes in the cost of the benchmark plan in each area.

Do I have to pay back advance premium tax credit? ›

If at the end of the year you've taken more premium tax credit in advance than you're due based on your final income, you'll have to pay back the excess when you file your federal tax return. If you've taken less than you qualify for, you'll get the difference back.

What income is used to determine premium tax credits? ›

Eligibility for premium tax credits is based on your Modified Adjusted Gross Income, or MAGI. When you file a federal income tax return, you must report your adjusted gross income (which includes wages and salaries, interest and dividends, unemployment benefits, and several other sources of income.)

How is ACA subsidy calculated? ›

The ACA limits the amount of money you must spend on premiums based on a percentage of income.
...
Calculating your subsidies.
Your income as a % of federal poverty levelMin. % of income paid for insuranceMax. % of income paid for insurance
200%-250%2%4%
250%-300%4%6%
300%-350%6%8.5%
400% or higher8.5%8.5%
2 more rows
23 Sept 2022

What is considered income? ›

Generally, you must include in gross income everything you receive in payment for personal services. In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options.

Does savings withdrawal count as income? ›

Starting at age 59½, you can take money out without penalty but withdrawals will be subject to that (deferred) tax liability you never paid when you contributed to the account. So your withdrawals will be considered taxable income subject to your effective tax rate.

At what age do you not have to pay taxes on an IRA? ›

Traditional IRAs

Any deductible contributions and earnings you withdraw or that are distributed from your traditional IRA are taxable. Also, if you are under age 59 ½ you may have to pay an additional 10% tax for early withdrawals unless you qualify for an exception.

Does retirement count as income? ›

If you receive retirement benefits in the form of pension or annuity payments from a qualified employer retirement plan, all or some portion of the amounts you receive may be taxable unless the payment is a qualified distribution from a designated Roth account.

Does 401k count towards Magi? ›

Traditional 401(k) contributions effectively reduce both adjusted gross income (AGI) and modified adjusted gross income (MAGI). The potential of tax deferral and reduction of current taxable income means that traditional 401(k) contributions offer ways to soften tax liabilities.

Is Magi the same as taxable income? ›

AGI can reduce the amount of your taxable income by subtracting certain deductions from your gross income. MAGI is your AGI after factoring in tax deductions and tax-exempt interest. You can't find your MAGI on your tax return, although your AGI appears on line 11 of Form 1040.

Can I get a tax refund if my only income is Social Security disability? ›

Receiving SSDI or SSI benefits doesn't prevent you from receiving a tax refund.

What is the federal poverty level for 2022? ›

Federal Poverty Level (FPL)
Family size2021 income number2022 income numbers
For individuals$12,880$13,590
For a family of 2$17,420$18,310
For a family of 3$21,960$23,030
For a family of 4$26,500$27,750
5 more rows

What happens if you don't make enough money to qualify for Obamacare? ›

Enroll on-exchange if your income is uncertain

Enroll in Medicaid if you're eligible. For people who aren't eligible for Medicaid but who have uncertain incomes, it's generally a good idea to enroll through the exchange during open enrollment.

Is Social Security considered income for Obamacare? ›

Include both taxable and non-taxable Social Security income. Enter the full amount before any deductions. But do not include Supplemental Security Income (SSI).

What is considered income for Obamacare subsidies? ›

Subsidy eligibility is based on income (ACA-specific MAGI). To qualify for a subsidy, a household must have an income of at least 100% of the federal poverty level (or above 138% of the federal poverty level in states that have expanded Medicaid).

What is the highest income to qualify for Medicaid 2022? ›

Income Limit in Most States

Most states — 38 and Washington, D.C. — have the same income limit of $2,523 per month for a single person for most types of Medicaid services. For a married couple, the limit increases to $5,046 in most cases.

What is 75 of the federal poverty level? ›

For comparison purposes, the federal benefit rate for SSI is about 75% of the FPL for one person. In 2022, the federal benefit rate (and SSI payment) is $841 per month.

What is 200% of the federal poverty guidelines? ›

Household Size150% of HHS Poverty Guidelines*200% of HHS Poverty Guidelines*
1$20,385$27,180
2$27,465$36,620
3$34,545$46,060
4$41,625$55,500
5 more rows
19 Jan 2022

Is there a penalty for overestimating income for Obamacare? ›

Keep in mind that if you estimate your income incorrectly and end up claiming more help than you are eligible for, you may have to pay back some or all of the premium tax credit you received.

What is the highest income to qualify for Medicaid? ›

Federal Poverty Level thresholds to qualify for Medicaid

The Federal Poverty Level is determined by the size of a family for the lower 48 states and the District of Columbia. For example, in 2022 it is $13,590 for a single adult person, $27,750 for a family of four and $46,630 for a family of eight.

Does 401k count as income for Obamacare? ›

Withdrawals from a 401k plan are generally counted as income (your pre-tax contributions, an employer's matching contributions, as well as earnings, are included in income). But qualified distributions from a designated Roth account in a 401(k) plan are not considered income.

Can you collect Social Security and Obamacare? ›

Are my Social Security benefits counted in determining my eligibility for subsidies in the Marketplace? Yes, Social Security benefits are counted as income in determining eligibility for premium tax credits in the Marketplace.

What is the highest amount of money you can collect from Social Security? ›

The maximum benefit depends on the age you retire. For example, if you retire at full retirement age in 2022, your maximum benefit would be $3,345. However, if you retire at age 62 in 2022, your maximum benefit would be $2,364. If you retire at age 70 in 2022, your maximum benefit would be $4,194.

What income is not counted for SSI? ›

Not everything an individual receives is considered to be income for SSI purposes. Generally, if the item received cannot be used as, or to obtain, food or shelter, it will not be considered as income.

Does Obamacare look at income or assets? ›

The Affordable Care Act's (ACA) premium subsidies (premium tax credits) have no asset test. Neither does the expansion of Medicaid under the ACA. In both cases, eligibility is simply based on income.

Do Obamacare subsidies have to be paid back? ›

For the 2021 tax year, you must repay the difference between the amount of premium tax credit you received and the amount you were eligible for. There are also dollar caps on the amount of repayment if your income is below 4 times the poverty level.

How do I maximize my ACA subsidy? ›

So, retirees looking to get subsidies in 2023 and beyond may need to cap their tax-reportable income at or below 400% of the federal poverty level for their household size. The gist of optimizing ACA subsidies is this: retirees don't have to be poor; they just need to have low income on their tax return.

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