People who don’t have health insurance from an employer plan can buy health insurance from a marketplace under the Affordable Care Act (ACA), also known as Obamacare. The monthly premiums are made affordable by a premium subsidy in the form of a tax credit calculated off of your household income relative to the Federal Poverty Level (FPL), also known as the federal poverty line, federal poverty guidelines, or HHS poverty guidelines.
The premium subsidy goes by a sliding scale. The higher your income relative to the FPL for your household size, the lower your premium subsidy is.
Modified Adjusted Gross Income (MAGI)
The income to compare against the FPL is the Modified Adjusted Gross Income (MAGI) for your household. It doesn’t matter how many family members in your household need coverage from the ACA health insurance.
There are many different definitions of MAGI in the tax code. MAGI for ACA health insurance is basically your Adjusted Gross Income (AGI) plus tax-exempt muni bond interest and untaxed Social Security benefits.
These incomes are included in your AGI, and therefore increase your MAGI for ACA health insurance:
- Wages, salaries, tips, and other employment income
- Business income
- Income from real estate rentals
- Unemployment benefits
- Pension and withdrawals from pre-tax IRAs or annuities
- Social Security benefits
- Interest, dividends, and capital gains
These above-the-line deductions are removed from your AGI and therefore reduce your MAGI for ACA health insurance:
- Pre-tax contributions to workplace retirement plans (pension, 401k, 403b, 457, etc.)
- Deductible contributions to Traditional IRAs
- HSA contributions
- Self-employment health insurance deduction
- One-half of the self-employment tax
- Pre-tax contributions to self-employment retirement plans (solo 401k, SEP-IRA, etc.)
- Student loan interest deduction
- Early withdrawal penalties on CDs
- Educator expenses
In addition, these items aren’t in the AGI but are added back to your MAGI for ACA health insurance:
- Untaxed Social Security benefits (see Calculator: How Much of My Social Security Benefits Is Taxable?)
- Tax-exempt interest from muni bonds
The Maximum Income
Before 2021, you qualified for the premium subsidy only if your MAGI was at 400% of the Federal Poverty Level (FPL) or below. You would lose all the subsidy if your MAGI went above 400% of FPL even by $1. You would have to pay back all the premium subsidy you already received when you file your tax return with the IRS. This was known as the ACA subsidy cliff.
The law changed in 2021, which turned the sharp cliff into a gradual slope. The Inflation Reduction Act extended the change through 2025. You still qualify for a premium subsidy now if your income goes over 400% of FPL. You just qualify for a lower amount as your income goes up. See ACA Health Insurance Premium Subsidy Slope.
This gradual slope only applies through 2025. The ACA subsidy cliff is scheduled to return in 2026.
In order to see how much you qualify for the premium subsidy, you have to know where the FPL is.
The Minimum Income
In addition to the maximum income to receive the premium subsidy, there’s also a minimum income to get accepted by the ACA marketplace. If your estimated income is too low, the ACA marketplace won’t accept you. They’ll send you to Medicaid instead.
The minimum income is 138% of FPL in states that expanded Medicaid, which is the case in most states and the District of Columbia. In states that didn’t expand Medicaid, the minimum income is 100% of FPL. According to a map from KFF, these states haven’t expanded Medicaid:
- Wyoming
- Wisconsin
- Kansas
- Texas
- Tennessee
- South Carolina
- Mississippi
- Alabama
- Georgia
- Flordia
However, unlike the maximum income, the minimum income is only evaluated at the time of open enrollment (or special enrollment), not at the time when you file your tax return with the IRS.
If your estimated income at the time of enrollment is below the minimum, the ACA marketplace won’t accept you, and they will refer you to Medicaid. If your estimated income at the time of enrollment is above the minimum and they accepted you, but your income for the year ended up below the minimum due to unforeseen circumstances, as long as you made the original estimate in good faith, you are not required to pay back the premium subsidy you already received.
The FPL Numbers
Here are the FPL numbers for coverage in 2023, 2024, and 2025. They increase with inflation every year in January. These are applied with a one-year lag. Your eligibility for a premium subsidy for 2024 is based on the FPL numbers announced in 2023. The new numbers announced in 2024 will be used for coverage in 2025.
There are three sets of numbers. FPLs are higher in Alaska and Hawaii than in the lower 48 states and Washington DC.
48 Contiguous States and Washington DC
| Household Size | 2023 coverage | 2024 coverage | 2025 coverage |
|---|---|---|---|
| 1 | $13,590 | $14,580 | $15,060 |
| 2 | $18,310 | $19,720 | $20,440 |
| 3 | $23,030 | $24,860 | $25,820 |
| 4 | $27,750 | $30,000 | $31,200 |
| 5 | $32,470 | $35,140 | $36,580 |
| 6 | $37,190 | $40,280 | $41,960 |
| 7 | $41,910 | $45,420 | $47,340 |
| 8 | $46,630 | $50,560 | $52,720 |
| more | add $4,720 each | add $5,140 each | add $5,380 each |
Alaska
| Household Size | 2023 coverage | 2024 coverage | 2025 coverage |
|---|---|---|---|
| 1 | $16,990 | $18,210 | $18,810 |
| 2 | $22,890 | $24,640 | $25,540 |
| 3 | $28,790 | $31,070 | $32,270 |
| 4 | $34,690 | $37,500 | $39,000 |
| 5 | $40,590 | $43,930 | $45,730 |
| 6 | $46,490 | $50,360 | $52,460 |
| 7 | $52,390 | $56,790 | $59,190 |
| 8 | $58,290 | $63,220 | $65,920 |
| more | add $5,900 each | add $6,430 each | add $6,730 each |
Hawaii
| Household Size | 2023 coverage | 2024 coverage | 2025 coverage |
|---|---|---|---|
| 1 | $15,630 | $16,770 | $17,310 |
| 2 | $21,060 | $22,680 | $23,500 |
| 3 | $26,490 | $28,590 | $29,690 |
| 4 | $31,920 | $34,500 | $35,880 |
| 5 | $37,350 | $40,410 | $42,070 |
| 6 | $42,780 | $46,320 | $48,260 |
| 7 | $48,210 | $52,230 | $54,450 |
| 8 | $53,640 | $58,140 | $60,640 |
| more | add $5,430 each | add $5,910 each | add $6,190 each |
Source:
- U.S. Department of Health and Human Services, Notice 2022-01166
- U.S. Department of Health and Human Services, Notice 2023-00885
- U.S. Department of Health and Human Services, Notice 2024-00796
The Applicable Percentages
The FPL numbers determine one aspect of your eligibility for the premium subsidy. How much you are expected to pay when you qualify for the premium subsidy is also determined by a sliding scale called the Applicable Percentages.
The lower your MAGI is relative to the FPL for your household size, the lower you’re expected to pay as a percentage of your MAGI. This table shows the applicable percentages through 2025:
| Income | 2022 – 2025 |
|---|---|
| < 133% FPL | 0% |
| < 150% FPL | 0% |
| < 200% FPL | 0% – 2% |
| < 250% FPL | 2% – 4% |
| < 300% FPL | 4% – 6% |
| <= 400% FPL | 6% – 8.5% |
| > 400% FPL | 8.5% |
We cover it in more detail in ACA Health Insurance Premium Tax Credit Percentages.
Plan Choice
The ACA marketplace offers many different plan options. They’re categorized into Bronze plans, Silver plans, Gold plans, and Platinum plans. Multiplying your MAGI by the applicable percentage determines your premium contributions toward a benchmark plan — the Second Lowest Cost Silver Plan.
You’ll pay more if you choose a more expensive plan. The annual premium you’ll pay for the plan of your choice will be:
MAGI * applicable percentage + (annual premium for the plan chosen – annual premium for the Second Lowest Cost Silver Plan)
You’ll pay less if you choose a less expensive Bronze plan.
When your MAGI is lower than 250% of FPL, in addition to having a lower applicable percentage, you also qualify for cost-sharing reductions, which lower your co-pays and out-of-pocket maximum. We cover it in more detail in Cost-Sharing Subsidy Under ACA Health Insurance.
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Steve Treisman says
My adjusted gross income for 2014 is now expected to be in the 46,400 range. I signed up for Obamacare in December, 2013 starting in January 2014 and am receiving a subsidy. My subsidy was based on the 2013 FPL levels which I estimated my MAGI to be $45,000. When I reconcile my 2014 taxes do I reconcile using the 2013 or 2014 Federal Poverty level?
400% of the FPL for 2014 is $46,680 which means I receive a subsidy.
400% of the FPL for 2013 is $45,960 which means no subsidy and must be back the subsidy I received.
Which one is correct? I am receiving conflicting answers. Thank you.
Harry Sit says
It’s 2014 income against 2013 FPL. You are cutting it very close. A dividend payment or year-end capital gains distribution from your investments can throw you over. Please do all you can to manage it down, including making tax-deductible contributions to 401k, IRA, and HSA. See Stay Off the Obamacare Premium Subsidy Cliff.
Barbara says
I have applied for Medicare and they denied me I make about 1000. Or 1200 a month I work part time I had insurance but I quit my job of 15 years to care for my husband who was ill he passed june20 2020 as he got worse I did. Notappl y for fml lost everything I had. I have high blood pressure a d d other things also I need to see a doctor but I am barley making can’t pay cash I just need some help
Kathy Kondrath says
Like Steve, I have been receiving a subsidy since January. In August I made a substantial withdrawal from my IRA to pay for a new home because my home had not sold yet. I notified the marketplace & had my insurance switched to a different plan & subsidy amount. I was figuring I would come in at about the $43,000. income level but now it looks like it might be $46,500. I’m terrified. I was thinking of putting $6500 into a traditional IRA but I’ve seen conflicting info on whether that will lower my MAGI or not. Can you give me any input??? I will greatly appreciate any suggestions. Thank you!!
Harry Sit says
Do you have earned income from working? You can only contribute to Traditional IRA if you have earned income. If you do, it will lower your MAGI.
Sharon Long says
I am 63 years old and am collecting Social Security. I earn about $11,500 per year from my job. How can I find how much of a subsidy I can receive to buy health insurance which I cannot afford without help.
Harry Sit says
Have you tried healthcare.gov?
Rita Thoele says
I was told by connectforhealthco (Colorado) that the poverty level for 2014 dropped to 200% to qualify for health insurance credits. Do you know if this is only applicable to CO or they don’t know the regulations?
Thanks for any information.
MSB says
Are your 2014 FPL numbers $300 high across the board? My 2014 form 8926 says family of 4 FPL is $23,550–not 23,850.
Harry Sit says
Please note the bold part. The numbers are applied with a one-year lag. 2013 numbers determine 2014 eligibility. 2014 numbers determine 2015 eligibility. 2015 numbers determine 2016 eligibility.
Tim Carey says
It is my understanding that $62920 is the max income for 2 people to be eligible for the tax credit for an ACA policy. Can you tell me how to calculate and what factors into the income total i.e. social security.dividends earned income,etc
Harry Sit says
From the second paragraph: “Modified Adjusted Gross Income for Obamacare is basically your gross income minus above-the-line deductions, plus tax-exempt muni bond interest, plus untaxed Social Security benefits.”
JohnInIowa says
I was unaware of how Obamacare worked for early retirees. Thanks for the article, Harry.
I’ve read that in retirement it’s generally attractive to spend down taxable funds first, and then retirement accounts (with Roth funds spent down last). That guidance had the advantage of being simple. However, the health insurance cliff that you mention appears to complicate things.
Do you see any relatively simple rule, Harry, for deciding whether it’s worthwhile to go over the cliff during early retirement instead of taking money out of retirement accounts?
Harry Sit says
It’s complicated. Among other things, it depends on how early is early, how much income you need, and how large a nest egg you have and where you have your assets. If early is 60, you can still go by that simple guidance. A large part of spending down taxable funds isn’t taxable. It’s easier to avoid the cliff. If early is 40, converting tax-deferred money to Roth is more important. The cliff is low when you are young. It isn’t too bad even if you go over it. All all ages, income bunching is also useful if you must go over the cliff.
Brian says
I feel sort of bummed about wanting to do IRA to Roth IRA contributions and not doing them before the ACA and before the value of said IRA went up…but I’m fortunate and that’s in the past…
I’m having a difficult time determining as a one person household whether it’s worth losing a subsidy by doing the conversion versus potentially paying more taxes for even more funds converted in the future.
Ssems like there should be an exemption to pay taxes on the conversion and still get a subsidy but I suppose savers often get hit with taxes for their responsible fiscal management, no?
Harry Sit says
It helps to find out how much of a subsidy you are really losing and how long you will have the subsidy. If you are going to lose it, it’s better to lose it early when the subsidy is low, and lose it in one year out of five versus losing it every year. See Converting to Roth and Harvesting Capital Gains Under Obamacare Premium Subsidy and Income Bunching Under Obamacare.
Eugene Laporte says
I am qualifying for free health insurance due to my low income. My grandmother died and left me as a beneficiary on her IRA and I will receive about $10,000. Will that count in my income and disqualify me for any assistance this year? I am single and have about $8,000 in earned income..
Brian says
Eugene-
Talk to an accountant.
That figure at most would reduce your subsidy, HOWEVER, it may be more like a tax-free GIFT, perhaps, especially if you can roll it into another IRA.
Harry Sit says
If you make the IRA an inherited IRA and only take out the required minimum distribution every year, only the required minimum distribution counts as income. If you destroy the IRA and take it all out, the whole thing counts as income.
Jan says
What happens if your adjusted gross income falls below poverty level when you file your tax return? Based on best estimate in January, I was just above poverty level. I have taken credits each month against my premium. Thanks!
Harry Sit says
Jan – This Q&A answers your question: http://kaiserf.am/1AhGsL5
George Mcculley says
If I lose my job before end of 2016 and have no income coming for 2017 which year income would I use for federal health insurance subsidie
Harry Sit says
Your income in the year for which you are buying insurance. 2017 income if you are buying for 2017. 2016 income if you are buying for the remainder of 2016.
CT says
I’m about to take a contractor job with a company that does not subsidize health insurance. Their family plan will run me 15K (PPO) or 18K (HDHP) for the year. With my income and dependents I would be just under the 250% FPL. Can I get into the ACA for a healthcare plan? It would be far less expensive. Or MUST I take the employer (contract company) plan costing me 15 or 18K for the year?
Harry Sit says
Anybody can buy a policy on the ACA exchange. The question is whether you get a subsidy. You don’t qualify for a subsidy when your employer plan for *employee-only* coverage costs no more than 9.5% of your *household* income. See the flow chart in The most confusing source of premium tax credit eligibility made simple, in one chart.
You gave the number for family coverage but you didn’t say how much it costs to cover only yourself. So do the math and see whether you qualify for a subsidy. If you don’t qualify for a subsidy, you can still pay the full price for a policy on the ACA exchange, which may still come out less than the family coverage your employer offers.
CT says
Thanks for rapid reply! And “wow” this is just insane. Your site is awesome (running a bit slow at times, but the content is awesome).
The employee-only plan is 5.5K (PPO) and 6.5K (HDHP), which are both going to be below the 9.5%.
The ACA does not make it real easy to get those prices unless you select the no employer coverage and then bump up income (more that it really will be) to get you into the ‘no subsidy’ range.
I did try one insurance company’s website direct and that did seem to work. Of course, no one seems to have “released” the 2017 rates just yet. It’s not probably going to be good news, so why rush.
BCBS in-network only, 11K per year
– 6K person / 12K family deductible, no copay after deductible
VS.
Employer in and out of network, 18K per year
– 2K/4K in-network | 4K/8K out-network deductible
Jem Wierenga says
Your figure for additional income per person for 2017 coverage is incorrect. It didn’t change from the 2016 amount ($4,160/person for 100% FPL).
Harry Sit says
A family of 5 in the lower 48 is $28,440. If you do the math, the fifth person is $4,140 extra. It’s $4,160 extra only when you have a family of 7 or more.
Lucille Cook says
A young male friend has had coverage under the ACA for the past year, has worked only sporadically, earning only about $9000. Will he be eligible for subsidy in NC? Thank you.
Harry Sit says
That income is below 100% FPL. I think he’ll be referred to Medicaid unless he expects to make more in the upcoming year.
Maria Martinez says
My income is $49,500 with 3 dependants in Texas, which did not expand Medicaid. Do I qualify for an exemption if coverage for me is $3700 and $150 a month x 3. It exceeds 8.13% of my income, so I was just wondering.
FinancialDave says
Maria,
It is a complex calculation based on your age, whether your employer offers coverage, and if so its cost, as well as the price of the lowest cost bronze plan, and the second lowest cost silver plan on your state exchange. All these numbers as well as if any of your dependents had income go into the calculation. I suggest visiting one of your local health exchanges if one exists near you.
Mrs. Picky Pincher says
Oy, the ACA is so confusing to me. I hope it’s been able to bring care to those who can’t afford it, but I’ve heard a few nightmare stories about high premiums and lack of coverage. I know ideas are floating around about repealing/replacing it, so we’ll see what happens I guess. I just hope the changes bring affordable healthcare to more people.
I opt to get coverage through Mr. Picky Pincher’s employer, so we’re lucky that they offer coverage. If neither of us qualified for benefits it would be tricky navigating the healthcare exchanges.
Alan Drake says
I stay below the ACA cliff with $6,500 deductible IRA (not Roth) contributions and $4,400 HSA contribution plus half of self employment taxes keeping me below 4x $11,880 this year (2017).
I turn 65 in July 2018. This will mean only a half year HSA contribution in 2018 ($2,200 + inflation adjustment) as I go on Medicare in July. I am waiting till age 70 (good health & family history) to apply for Social Security. Note: Anyone in my situation, close to the ACA cliff and turning 65 in 2018, should wait till at least January 2019 to apply for SS since SS is added to AGI to see if you go off the ACA cliff and pay an extra $5,000+ in taxes.
Are there any special rules for ACA subsidies for those that turn 65 during the year ? Or do I have to make sure I stay below 4x $12,080 in 2018 ?
Thanks,
Alan Drake
Harry Sit says
I don’t see any special rules. Going on Medicare would be similar to someone who finds a job with employer group health insurance. You have to stay below 4 x 12,060 in 2018.
Since you mentioned self-employment taxes, if you continue self-employment in 2018, keep in mind the ACA health insurance premiums not covered by the tax credit plus your Medicare premiums in the 2nd half of 2018 are deductible above the line. Those may give you additional room to keep you below 4 x 12,060. See IRS Guidance On Circular Reference in Obamacare Premium Subsidy and Deduction.
Alan Drake says
Two errors in my question. The ACA cliff is 4x $12,060 in 2018. And the ACA cliff in 2018 will be only half as high (turn 65 in July), so an extra $2,500+ in taxes for going $1 over.
Sorry.
FinancialDave says
Alan,
I am not sure where you are getting the $2500 in taxes for 2018 if you go over the “cliff”. I guess it depends on whether you have insurance or not. It sounds like you do not. If you do not have insurance then the ACA cliff really does not exist for you as that terminology is meant to apply to those that are getting a premium tax credit by buying insurance through the marketplace. If that was the case then when you go over the 400% FPL point by $1 then you lose the PTC, which in 2016 for someone age 65 could be about $1800. However, if you do not have insurance in 2016 my tax software is telling me your tax penalty for 2016 would be $880 for a MAGI of $47,080 if you were age 65 and $918 if you were under age 65, provided of course that you could not get an exemption. In Washington State the cost of insurance at age 64 just puts you in the area where you would get an exemption based on the affordibility of the insurance at a MAGI of $47,080.
FinancialDave says
I think many could have a shock to their tax return if they think the only test is 400% of the FPL. This is not a simple go or no go test. It is quite possible that an employer could offer insurance for a cost that is below this threshold, or if your employer offers no insurance then it is even more possible that your state health exchange will offer insurance that is below this level when the premium tax credit is taken into consideration. The health exchange rates are based on age so the younger you are the more chance you will be under the limit and not be able to get an exemption if you are right on the 400% line.
fd
Alan Drake says
I have an HSA health insurance policy through the ACA Marketplace. I get monthly subsidies for this policy.
Without reducing my AGI by $4,400 for HSA contributions and $6,500 for traditional IRA contributions, my AGI would be over 4x $11,880 (I am single) and I would have to repay every penny in ACA subsidies. With HSA + IRA I should be below that threshold and get over $5,000 in premium subsidies.
In 2018, I will turn age 65 in July. I plan to continue from January to June 2018 as I have in 2017. In July 2018, I plan to switch to Medicare. Thus my potential tax liability for exceeding 4x $12.060 in 2018 will be only half of my potential liability for 2017. @ $5,000/2 > @$2 500.
Robert says
Went over the cliff by only $821 , still screaming on my way down ….401%…..Forgot to add and factor my early social security Income along with my full time job ….Be Careful out there …President Biden going to bring bill to floor to set limit cap limit to 8% of your annual income, to be paid back to paid back .!…Just dont jump and you be OK is my advice …My mistake cost me 15k ….Ouch….
FinancialDave says
Alan,
In the case where you DO have a policy thru the marketplace the calculation is slightly different (I mis-read your post thinking you had no policy – my mistake), but still no way it is a $5000 liability at the “ACA cliff.”
Let’s look at the calculation, which you can confirm by actually working out the details on form 8962 or hopefully some tax software that handles this properly.
Example your income is right at the cliff point in 2016 of $47080. From the table the salary multiplier is .0966 for a salary of 400% of the FPL. This multiplication gives $4548 which is the annual contribution amount box 8a on form 8962. This number is subtracted from what is called the Second Lowest Cost Silver Premium (SLCSP) – line 33B on your 1095-A. For my state this number is $6120 for someone of age 62 on Jan 1 of 2016 (which I think was your age then). So subtracting 4548 from this gives you the maximum amount of your premium tax credit, which is $1572. So $1572 is the correct amount of the subsidy you should be getting. What they did give you as a subsidy of course is on column 33C of 1095-A. To the amount that 33C is greater than the $1572 (or your particular number of form 8962 line 11(d) you will need to repay it no matter what your salary. The point of this part is that your total liability is the amount of the premium tax credit or $1572.
However, to finalize this let’s asume the marketplace gave you a subsidy of $1572 in my example, so you neither owed a tax or got a refund on the subsidy. Now you forgot you had $1 of interest income from your bank and it throws you over the cliff! ALL of the $1572 that was your subsidy does need to be repaid, that is the way it works, but there is absolutely no way your liability is close to $5000.
There is however a way you might owe more than the $1572 and that is if you told the marketplace your salary was much lower than it ended up. For example if you told them your salary was going to be $30,000 then it is possible you could have gotten a subsidy approaching $3600, so in that case if you fell over the cliff the damage to your taxes is $3600, but it is not really because you had a liability of $3600, it is just that you did not properly estimate your salary to begin with. I saw this all the time in the first couple years of doing these tax returns when people did have to literally repay thousands of dollars, but it was usually because of an income change during the year.
Dave
Harry Sit says
For your state that number is $6120 but in some other states where insurance is more expensive it can be over $10,000. That’s why the cliff can be $5,000. For example try pricing it for a 64-year-old in California.
FinancialDave says
Harry,
I’ll take your word for that. If Alan would tell us his line 33B amount from the 1095-A, then I guess we would know actually how bad it is. I was also thinking that typically an HSA plan is cheaper, which could also be a limiting factor.
However, since I finally found my way into the CA exchange, I am see Silver plans for less than $400 a month??
Sure maybe you can find insurance for $10k in CA, but the calculation is based on the second lowest cost Silver Plan.
Harry Sit says
The less than $400 a month is after the advanced tax credit. I’m using zip code 95123, income $47,000, single 64-year-old. Second lowest cost Silver plan is $372 after $589 tax credit. The full unsubsidized premium is $11,532 per year.
FinancialDave says
Harry,
Thanks for enlightening me. I did not even realize that there are even places more expensive than CA, such as Alaska. Of course still doesn’t tell us about Alan’s case, but I admit it is at least possible.
Brian says
An issue that we have come across as we’re filing our 2016 taxes is that the second lowest cost silver plan (SLCSP) premium that is shown on our Form 1095-A (Part 3 Column B & on the online tool) is a much lower dollar amount than the SLCSP premium that was shown at the time of enrollment and used to determine our premium tax credit. (We were covered during all months; we had no changes in family status; we had no dental plan; we had none of the exceptional cases the Marketplaces mentions that might cause a different SLCSP on the Form 1095-A.)
The dollar amount on the Form 1095-A is so much less (about $88/mo) that it results in a change in our 2016 tax liability of over $1,000!! (We kept a snapshot of the SLCSP that was provided by the Marketplace during enrollment so that we could compare it to what we would later receive on our Form 1095-A.) This is a problem that will create a huge tax liability for many taxpayers with a too-low SLCSP dollar amount on their Form 1095-A.
Harry Sit says
Anecdotally I heard in some places a low cost provider would submit two similar plans so that one of theirs becomes the second lowest cost Silver plan, which makes the other providers’ plan more costly because the subsidy is now lower.
Brian says
What we have found, having been on the ACA since its inception, is that the SLCSP (aka, the “benchmark plan”), is just the benchmark used to determine the subsidy. Once the subsidy is determined for the enrollee, the subsidy is the same no matter which plan is chosen (no matter the metal or type of plan).
So if an enrollee chooses to select a plan that is more expensive than the benchmark plan, the enrollee pays the additional out-of-pocket premium cost.
Since the SLCSP is determined and provided to the enrollee early in the enrollment process, the enrollee can project what the impact on his/her federal taxes will be (due to the plan selected) even before completing the enrollment process – SLCSP, premium subsidy, premium of plan selected, projected income, family size, etc.
Having been provided the SLCSP at the time of enrollment, we know that the SLCSP shown on our 1095-A is incorrect (just like hundreds of thousands of them were back in 2015). Getting the Marketplace, the CMS, and/or the IRS, to admit it though, is like pulling teeth.
Jack ben says
My. 1095 a was incorrect
FinancialDave says
Jack,
That is quite possible for a number of reasons – what is your particular issue on the 1095-A?
karen Polzin says
I had bad health problems all of 2017 so did not work. I was on Obamacare for
2016 and had health coverage. I took out $13,000. from my conventional IRA in 2017.
Will this be enough to get subsidies? What else can I do?
Brian says
You can get an estimate by using the Healthcare.gov plan & preview site: https://www.healthcare.gov/see-plans/#/
Just enter your data and see what it gives you.
Alan Drake says
When you apply on Healthcare.gov, you are asked for your expected income for 2018. If it does match your recent tax returns, you get your claimed subsidy (based on your expected 2018 income) for just January.
Marketplace then asks you to send in (electronically is an option) old tax returns etc and an explanation.
If they accept your reasoning (I suspect they will) then you will get your claimed subsidy for the next 11 months.
If your 2018 income is higher than you expected, there is a cap of $750 or $1,250 you have to pay back of the subsidy.
I had the same problem after my father passed and some one time “forced” income – including one of his IRAs going to his estate that was distributed as taxable cash. I said I expected much lower income in 2018 than in 2016 and gave the reasons why. I am waiting on a response.
I hope this helps.
karen Polzin says
Doesn’t someone have a yes or no answer? I am 61 years old and had a brain tumor removed in 2017. I wasn’t able to work at all in 2017 but I had Obamacare because I had said I expected to work and make $20,000. but I didn’t work at all. I used to work for myself so did not have an employer. I took out $13,000. of my traditional IRA. I live alone and have no other income. I live in Northern Virginia. PLEASE tell me if I need to take out more to get Obama Care.
Alan Drake says
I claimed $16,800 in expected 2018 income. I sent in letter and front page of my 2016 1040. I explained that I would convert money from Traditional IRA to Roth if need be to get to $16,800 (just over 138% of FPL, thus keeping me off Medicaid). Converting to Roth has same effect as taking cash out.
Today, my explanation was approved and my Marketplace coverage is effective as of 1/1/2018.
Contact me at AlanSDrake at gmail dot conn if you have more questions.
Harry Sit says
The answer depends on whether your state expanded Medicaid or not. Virginia has not. In Virginia you need 100% of FPL to have health insurance from ACA/Obamacare. For a single person in 2018 that number is $12,060. It’s tracked to the current year’s income, not previous year’s income. You need to have/estimate that much income in 2018.
Alan Drake says
However, based on last night’s votes & personal discussions with Mary Margaret Whipple (retired State senator & lobbyist for expanded Medicaid), expanded Medicaid should go into effect July 1, 2018 in Virginia. This will raise the bar to 138% of FPL to stay out of Medicaid (and quality of care is generally better with private insurance – one reason to perhaps choose to stay out of Medicaid).
In Louisiana, when we expanded Medicaid on July 1, 2016, everyone in Marketplace with 101% to 138% of FPL was automatically placed on Medicaid & premium subsidies stopped. Too soon to say about Virginia.
Note: I assume above that you do not want to be enrolled in Medicaid. Quality of care is a legitimate reason to chose not to do so. There are other reasons as well – but Medicaid is free.
Harry Sit says
Good point. It would be safer to make it 138% FPL, which comes out to $16,643 for a single person household in 2018.
Brian says
Here in Ohio we have expanded Medicaid; in the County I reside in, the only 3 ACA insurance companies are those same Medicaid providers (the largest one being Caresource). So here, there is no way to “stay out of Medicaid”, when choosing the ACA for insurance.
Alan Drake says
The level of care for private insurance vs Medicaid from the sane insurance provider can vary significantly.
Three examples: Cure for Hepatitis C is covered by private insurance in Louisiana (all policies AFAIK). Medicaid only covers a cure after near fatal liver damage. Louisiana Medicaid only pays for about 100 Hep C cures a year.
Opoid addiction treatment is available at almost every treatment center with private insurance. With Medicaid, only a couple of rehab centers accept Medicaid.
Private insurance allows a choice of artificial knees. Louisiana Medicaid requires that you take the least expensive one offered.
So different policies administered by the same insurance company can provide different levels of care.
I am age 64, coming off 3+ years caring for my elderly father & trying to re-establish my engineering consulting income. I could have qualified for Medicaid in 2016 but chose not to due to the reduced Standard of Care.
Susan Allen says
I fell and was hurt on my job in late Feb. Been drawing workers comp since and will probably return to work Dec 1st if doctor releases me. I never thought to check on my subsidy for my insurance until 2 weeks ago and discovered I will not make enough this year to get it since the workers comp does not count as income. My income (single widow household of 1), by the best of my calculations will be $8700 plus another $200 in premium payments from life insurance. If I draw money out of my IRA to make up the difference for my income, will it count as income so I do not have to repay subsidy of 892.00 per month. I will gladly pull out money to save paying that back.
Harry Sit says
If your income is lower than expected you are not asked to repay the subsidy. You need to be able to explain why your income won’t be that low again for the following year.
Anonymous by requirement, not by desire says
When it comes to figuring out what documents are useable for verifying complex income situations (or any ACA-related data matching issues) there is a NEW number you can call. 1-844-477-7500. This number started taking calls during the end of the summer of 2017. It is not the same as the number on the healthcaredotgov website, that number is 1-800-318-2596. If you get a voicemail stating you may need to send additional, or different, documentation to verify your data matching issue, call the 844 number. DO
NOT KEEP SENDING THE SAME DOCUMENTS TO THEM. IF THEY WORKED THE FIRST TIME, YOU WOULD NOT BE GETTING CALLS, instead, call them ASAP.
They are available between 7am EST and 8pm EST Mon-Sat. They are open on sundays but I think they only work during the middle of the day until around 6ish EST.
If you need help navigating the website or asking about coverage, call the 800 number. They handle the entering of info. The people at 844 handle info that’s already been entered into applications.
The people at that 844 number are the actual people who deal directly with the documents you send in. Thy can help
You figure out what document to send to resolve nearly any issue you have, including how to turn a hand-written letter into a legally binding verification document.
They do not, and will not, give advice on subsidies because they aren’t trained on them. They are trained to explain what documents are needed so that if you have a “data matching issue” with your ACA application, you can figure out what to send to get it resolved… thus helping you keep your subsidy or coverage, depending upon the issue.
Also, if you have a question about what to send to qualify for an exemption, you can call the 844 number and ask for a member of the “Exemptions team” and get direct help from someone with the instructions directly in front of them. Be honest with all of these people, though. They aren’t paid to help the government. They are specifically in place to help us, the consumers, and actually WANT to help us.
Also, please be nice to them. They aren’t the little old ladies at the DMV. They are regular people like us who are paid to help solve problems. You may be surprised at how much FREE, useful, help is available, if you know where to find it.
For some unknown reason, that 844 number is “not allowed” to be broadcast like the Marketplace call center’s is. It is the single best kept information secret of the ACA.
Alan Drake says
However, this may be a very good year to create income by converting some of your Traditional IRA to a Roth IRA.
*IF* I was in your situation, I would fill up the zero bracket amount and the 10% bracket with Roth conversions (if you have cash to pay the 10% taxes).
If you are not subject to the 10% early withdrawal penalty, I might withdraw enough cash from the Traditional IRA to pay those 10% income taxes.
Also, my understanding is that insurance payments for disability (even on a life insurance policy with a disability rider) are not taxable income.
Note: I am not a tax professional, but worth asking your agent.
Judith says
THis is so f’d up…you cannot even live under a roof for under 12k a year in Seattle. Hmmm…do I eat and have a flip phi=one and insurance OR a roof…choices, choices…isn’t America great?
lynn says
i have been unemployed so exempt from mandatory health care. i now have a job part time that will just barely make me eligible for coverage. if i miss work any time during the year or my hours fluctuate i will fall below the required income. could i do odd jobs to make up the difference like pet or baby sitting.? since these jobs dont have a w2 usually would i just keep a record of how much i make?
Alan Drake says
Yes, a W-2 or 1099 is not required to declare income. It is also not required to declare all valid deductions to produce income.
You will have to pay social security taxes on this otherwise undocumented self employed income. $14.13 in social security taxes on every $100 in self employed income.
And, AFAIK, the IRS is not very concerned on self reported self employed income that you declare – especially from a low income person. Declare the income, pay the taxes and they are happy.
Kit Grady says
My husband passed several weeks ago and I rushed to sign up for ACA before the deadline.
I have no income now but plan to use his life insurance to live on. The navigator directed me to use dividends as a taxable income now and I said I make $24,000 to at least get signed up now.
She said I could go back and adjust this number next month when I know more.
Is this possible? How much is required at what percent to get 2,000 per month. Would I ask for dividends and keep the rest with the company? Is this a good solution or am I being foolish?
I’m so worried and confused and would appreciate any help offered.
Brian says
First, I’d like to offer my condolences on the loss of your husband.
For the ACA, your modified adjusted gross income (MAGI) is used to determine whether or not you qualify for ACA subsidized coverage.
Since you have various sources of income to withdraw from to live off of – life insurance, dividends, stocks, cash, etc. You have complete control over where you withdraw your money from to maintain the lifestyle you’re used to. At the same time, you have complete control over what your MAGI will be. As your income changes you can always go back to #Healthcare.gov and adjust this number when you know more.
Yes, this can be a good solution. My wife and I are doing this same thing. We’re retired with various sources of income to live off off – small pensions, IRAs, non-qualified investments, and cash. Just like you, we have complete control over where we withdraw money from to maintain the lifestyle we’re used to. At the same time we ensure our withdrawals are tax-efficient so that we keep our MAGI right on mark.
You need to make sure that as you withdraw your money from the various sources that you withdraw it in a way that your MAGI does not go too low (or too high) that you lose your ACA subsidy. If you can do this yourself, great! (We do this.). Otherwise, you should seek tax-related assistance.
Alan Drake says
You have two ways to go.
Sign up for Medicaid *IF* your dividend income will be below $12,060 in 2017 and you live in a state that has not expanded Medicaid (Texas is the largest state). Or below $16,643 if you live in a state that has expanded Medicaid. Google your state and “expand Medicaid” to find out which one you are in. The Marketplace can also tell you.
Medicaid is free but the quality of care is often not as good as Marketplace insurance.
The other path is to sign up for a health insurance policy under the Marketplace, where subsidies will make insurance much more affordable.
Cash and stock you inherit is not income – interest and dividends are income.
You need to contact “the company” or trustee to find out how much dividends on your inherited stock will be.
Since you have signed up through Marketplace already, you are not under the December 15th deadline to resolve this – BUT it is wise to find out.
I hope this helps. There are too few details to give much advice beyond the basics.
Jason L says
Hi, If my business is a sole proprietor set up as an S Corp, and I am taxed on the salary I draw separately from the corporate tax return, is my ACA eligibility benefit calculated based on my salary, or my salary plus the net income of the business? Thanks
Alan Drake says
ACA subsidies are calculated on all taxable income from all sources, passive & active – plus tax free interest. Then “above the line” deductions are subtracted.
ACA subsidies are meant to help those that would have difficulty paying health insurance premiums out of current income without the subsidies.
However, all “above the line” deductions (lines 23 to 34 from memory) except tax exempt interest are deducted from income before calculating income for an ACA subsidy. Under current law that would include HSA & IRA contributions, student loan interest up to $2,500, moving expenses, up to $250 worth of supplies by teachers, alimony, 1/2 self employed employment taxes, etc.
The above list is “subject to change” with the likely new tax bill.
Carolyn says
My income in 2018, mostly from retirement savings, will be about $24K , but my Obamacare health insurance premiums alone will cost nearly $17,000, and those along with other uncovered medical expenses nearly wipe out my income – making me subsidy-ineligible. And my state did not expand Medicaid. Am I REQUIRED to take the deductions? Would I be better off not taking them?
Alan Drake says
Yes. Estimate your income (even if you are wrong) up to where you get subsidies to help pay your health insurance premiums.
You are not legally required to take deductions when applying for Marketplace health insurance – or even filing your 1040 return.
If you live in a state that has not expanded Medicaid, you need to get your income above $12,060 !
Brian says
So, what did you finally decide to do, now that the enrollment deadline has passed?
FinancialDave says
Carolyn,
What state do you live in where your ACA insurance is $17,000 a year?
My assumption is you file your taxes as a Single person?
I am also not sure of what deductions you are talking about taking or not taking?
The ACA / IRS subsidy calculation rules are in most cases based on your line 37 AGI on your 1040 for the year in question (in this case 2018). As far as I know no rules are changing about that calculation. The other variables are the LCBP and the Silver plan which determine what your subsidy will be.
Drake,
I don’t know what you mean by saying some deductions are optional — certainly it is optional if you take the standard deduction or you itemize on page 2 of the 1040, but this does not change any of the ACA calculations.
Dave
Carolyn says
I had already applied when I asked my question, but if I understand correctly, you can (and are even required?) to go back in and change your income numbers if there’s a change in your expected income. So if I change my mind about what deductions I’ll take, am I correct in assuming I can legally change my income numbers to reflect that, and thereby qualify?
Also, I’ve already paid the first premium without the subsidy. If my income changes as described above, will I get a refund of the subsidy amount I could/should have received if I’d disclaimed the deductions from the start?
FinancialDave says
carolyn,
If you buy insurance from the marketplace, you will (as of current IRS rules) always need to reconcile the subsidy with the IRS on your 1040. You will either get some back if you overpaid or have to pay more (to the IRS) if you guessed wrong about your income in the other direction.
Dave
Carolyn says
Dave, thank you; very helpful!
Alan Drake says
Near the bottom of these IRS instructions are “Less than 100% of Federal Poverty Level”.
My reading is that you can take the premium subsidy – and keep it- if you apply for a Marketplace policy expecting to make between 100% & 400% of FPL.
My suggestion is to go back in now and “expect” to make > $12,060 in 2018 and seek a subsidy for every month in 2018 (you will end up with an excess premium credit refunded at the end of the year).
Since the tax bill is likely to pass – the first $12,000 in taxable income will be within the standard deduction.
Personally, I would plan on failing to claim enough deductions to get to about $12,200 or so in taxable income – pay 10% on $200 or so ($20) and claim the maximum health insurance premium subsidy.
So go back in now & change your estimated income for 2018 to just over $12,060. In 2019, decide just how many deductions to claim when filing.
PS: My 2018 expected income is much lower than my 2016 reported income, so I had to send a letter explaining why. The letter was accepted quickly.
Best Hopes & Merry Christmas ?
Alan Drake
Alan Drake says
Dave,
One can have a perfectly legitimate deduction – say moving expenses, paying interest on a student loan, an HSA contribution for “above the line” deductions – and elect not to claim those deductions.
There are severe penalties for failing to report taxable income, but none for failing to claim legitimate deductions. One is not even required pro forma to do so. It is quite legal to not claim a deduction to which one is entitled.
Example: I know several people with legitimate home office deductions who elect not to claim this deduction due to increased audit risk.
FinancialDave says
Alan,
I suggest maybe your tax advice is slightly mis-guided at least to some degree. If you knowingly change your income – either up or down to affect your 1040 bottom line, then this is fraud on your tax return, which legally does not even have the 3 year audit protection.
Let me give you an example where not taking a deduction actually causes you to owe back taxes and a penalty when you are audited. Let’s say you forget to mark down a deduction on your schedule C, let’s say it’s the office deduction, and this increases your Sch. C income. For a low income married family with a couple of qualifying kids this increased income could very well give them a higher EIC payment and a larger refund check from the IRS, if the income is in the right part of the EIC curve.
I think to keep you out of trouble your best bet is to report your income and deductions as they exist and not try to “game” the system.
Carolyn says
I’m in a major city in TX. Very few providers here. The policy will be the best one I can get, because I’m fairly “senior” and might really need it. Fwiw, the best plan available is an HMO with a network so tiny that it’s a struggle to find doctors accepting the plan and there’s no hospital you can go to that will have all the needed services in-network (lab, radiology, etc.).
Needless to say, I did not plan for this in calculating what I’d need during retirement.
Carolyn says
“Few providers here” – to clarify, few docs accepting the plan, yes; but also very few insurers willing to sell through the Marketplace.
Carolyn says
Sorry, didn’t answer all the questions. My understanding is that deductions could include the cost of healthcare insurance premiums – so that’s a big chunk right there. Then there’s all the medical expenses not covered by said insurance.
It would be ironic, to say the least, if the cost of medical insurance and uninsured medical care could render one ineligible for assistance in paying for medical insurance.
FinancialDave says
Carolyn,
If you are talking about deductions on a Schedule A, then yes out of pocket expenses for insurance and other medical expenses, to the extent they are over 10% of your income are all ways to lower your taxes if you are able to itemize, but these deductions have no affect on your ACA subsidy, which is what I thought we were talking about.
Alan is wrong when he states you can just go in and under-estimate your income so you can get a bigger subsidy and you won’t have to pay it back because you will when you file your 1040 for 2018 in 2019, that is why they want you to esitmate your income correctly.
The income for your subsidy estimate is basically your income items from page 1 on the 1040, such as your taxable IRA distributions, interest income, dividend income, taxable portion of pensions, etc. You do not get to deduct any expenses from this income such as your medical, if that was what you were thinking. If you put the right numbers in on your marketplace submittal they will do the rest of the math for you.
What happens is they have a table based on your age and what is called the second lowest cost silver plan (SLCSP) — let’s say as an example that number is $6000. That is what they consider a reasonable plan for your area. From that number they are going to calculate what you can afford based on your income number — let’s say for a single person with $25,000 income this is going to be $1700. The difference 6000-1700, which is $4,300 is the credit that they will pay you for any plan you buy, up to the price of the plan. So let’s say you could have bought a plan for $6000, which would have been the second lowest cost silver plan, they would give you $4,300 credit towards that plan and you would essentially owe $141.67 a month for your insurance.
Now let’s say instead you decide you want to buy a much more expensive plan costing $17,000 a year, you will still get the $4,300 credit, but because the plan costs more you will now owe $1,058.33 a month for this insurance.
Final notes — as your income goes up the credit you get is less. As your age goes up the price of insurance goes up, which increases your credit. For instance the $6000 cost of SLCSP insurance in Smith County Texas was for someone born in 1958 calculating the Premium Tax Credit in 2016. If you were born in 1956 that cost was roughly $6500 in 2016.
I hope that makes some sense.
Alan Drake says
Dear Dave,
Per my tax accounting course professor at the University of Texas over three decades ago (before EIC BTW), reporting deductions was optional. Not reporting a deduction was not making a false statement per him quoting Tax Court case law.
He gave a few examples, one of which is not taking a home office deduction. Another where a patriotic taxpayer just wanted to pay more taxes.
Alan
FinancialDave says
Alan,
I understand your point, and the home office deduction is probably a bad example, as it’s rarely something that can be proved as you must take it. However, in the world of EIC I do know of people that have lost their ability to take it, by increasing their income – not specifically by taking a deduction, but it could happen.
Anyway, I think we are well off the track of this conversation, because I don’t understand what at all this has to do with our poster Carolyn’s plight. ACA calculations are not affected by any deductions that I know of.
Carolyn says
When you actually do the application, it specifically asks about gross income and deductions, and asks you to subtract the deductions from your income. I think it does this because subtracting legit expenses probably helps many people into the subsidy window, who might be deemed to make too much if the deductions aren’t taken into account (when it asks about income, it basically asks for your gross income). I can’t remember if the language asks if I COULD take said deductions, or if I WILL take them. I’ll look at that when I go back into the application, but I’d rather not do that until I’ve decided on a course of action, because every time you touch it, you risk having to re-do the whole thing and/or messing something up.
I really appreciate everyone’s efforts to help me figure this out!
Harry Sit says
There are different types of “deductions.” A pre-tax contribution to a 401k plan would be a “deduction” that affects income. ACA premiums or out of pocket medical expenses are not that type of deductions.
FinancialDave says
Carolyn,
I think there is some confusion here from their use of the term deductions. As Harry and Alan point out the only “deductions” are things that reduce your Gross income.
A better way to look at it is what is your taxable income, which since you are not working, this would basically be your gross income minus any contributions you make to your HSA. If you look at last years 1040, this is basically the number represented by the bottom of page 1, so you might just consider what will have changed from last year from this number. With your low income and high expenses I wonder if you are really going to have any money left over to contribute to an HSA anyway.
You don’t get to deduct any costs for the insurance itself or other “expenses” you might have.
Alan Drake says
Likewise, HSA contributions reduce income for ACA calculations.
One year, my HSA contribution reduced my income below 400% of FPL and saved me from the “ACA cliff” and about $5,000 in extra taxes. I just paid a $1,250 penalty for underestimating my income.
This is a major reason I chose high deductible HSA eligible health insurance plans. I get a larger premium subsidy by contributing to my HSA every year (typically my premium subsidy increases by about 15% of my HSA contribution, on top of the increased income tax deduction).
That year I also made contributions to a Traditional IRA instead of a Roth & opened a SEP IRA. All three – HSA, Traditional IRA & SEP IRA (employer contribution as self employed) – reduced my income for ACA health insurance premium subsidies. I squeaked under the 400% FPL after my father’s death forced IRA distributions from his IRAs I inherited.
My calculation is that my annual HSA contribution has reduced my federal income taxes by 15% most years (soon 12% ?), state income taxes by 4% and increased my ACA health insurance premium by about 15%. Combined, my out-of-pocket cost for HSA constributions is 66% of every dollar.
I plan to use my HSA surplus balance to pay Medicare premiums when I get older.
Carolyn says
Ok, I got busy with something else but I hope some of you might still respond. To clarify, I am not talking about doing anything to change my income for any purpose, and certainly not trying to “game” the system. It’s just that, on the ACA application, first it asks for your income, then it asks for your deductions. In past years, for tax and other purposes, I’ve been deducting costs for my health insurance along with other medical expenses to the extent they exceed 10% of my income, so my initial answer was to include those deductions. That said, I don’t think they specifically ask you to take those particular deductions by name, and if they’re optional, maybe I don’t have to for subsidy eligibility purposes? That’s what I’m trying to figure out. Because my income is too low for the deductions to significantly reduce my taxes, AND if I have to deduct them in order to calculate my MAGI for subsidy purposes, they take my income from > $24K down to very little, and I lose the subsidy.
I don’t know if all that helps, but I welcome any further thoughts/clarification. I certainly haven’t found anything saying I MUST take the deductions for purposes of calculating my MAGI; but I also haven’t really found anything directly addressing my situation.
You all sound more like you know more about what I’m talking about than most other sources seem to, so thank you for any further thoughts!
Harry Sit says
See my reply under #48. The deductions you are talking about are not the ones the ACA application asked about. You can still take them on your taxes. They don’t affect your MAGI or your eligibility for the subsidy. It appears you don’t have the type of deductions the ACA application asked about. So don’t worry about it.