What counts as income for ACA subsidies

Subsidies are based on MAGI

The income that determines your premium tax credit isn’t your salary or your take-home pay — it’s your household’s modified adjusted gross income, or MAGI, projected for the coverage year. MAGI starts with the adjusted gross income from your tax return and adds back a few specific items. For most people the two numbers are nearly identical, but the details matter when you’re close to a subsidy threshold.

Whose income counts

Marketplace subsidies look at your whole tax household, not just you. That means your income, your spouse’s if you file jointly, and the income of any dependents who are required to file a return of their own. A dependent’s small part-time earnings usually fall below the filing threshold and don’t count, but a dependent with significant income can be included. The household you claim on your taxes is the household the Marketplace uses.

What counts as income

MAGI captures most kinds of income: wages and salary, self-employment earnings, interest, dividends, and capital gains, taxable retirement account distributions, pension and annuity income, unemployment benefits, and rental income. Two add-backs catch people by surprise. Tax-exempt interest counts even though it’s not taxed, and — importantly — the full amount of your Social Security benefits counts toward ACA MAGI, including the portion that isn’t subject to income tax. Foreign earned income that’s excluded on your return is added back as well.

What doesn’t count

Plenty of money that flows into your life isn’t income for this purpose. Gifts and inheritances don’t count, nor do qualified withdrawals from a Roth IRA, since you already paid tax on those contributions. Child support received, Supplemental Security Income (SSI), most veterans’ benefits, and proceeds from a loan also stay out of MAGI. The Roth point is the one worth remembering, because it’s what gives retirees a way to fund their spending without inflating the income that sets their subsidy.

It’s the whole year — and you can lower it

The Marketplace asks for your expected income for the entire calendar year, not a snapshot of this month, so you’re estimating ahead. That estimate is also where you have some influence: contributions to a traditional IRA or 401(k), and to a Health Savings Account if you’re on an HSA-eligible plan, reduce your MAGI, which is why they double as tools for protecting a subsidy. If you’re using income to stay under the 400% cliff, our guide to staying under the cliff walks through the levers — and the cautions. Because the repayment cap is gone, it’s wise to estimate carefully and update the Marketplace if your income changes during the year.