What Income Counts for ACA Subsidies? MAGI Explained

ACA subsidies are based on modified adjusted gross income (MAGI) - wages, self-employment income, Social Security benefits, rental income, and other sources all count. MAGI for ACA purposes is essentially your AGI plus any tax-exempt interest and the non-taxable portion of Social Security benefits. Getting this figure right is critical: overestimate and you leave subsidy money on the table; underestimate and you may owe a large repayment when you file. Use our ACA subsidy calculator with your best income estimate to see your projected credit.

What is MAGI for ACA purposes?

For ACA premium tax credit purposes, MAGI is defined under 26 U.S.C. 36B(d)(2) as adjusted gross income (the number on line 11 of Form 1040) plus three items that are typically excluded from AGI:

1. Tax-exempt interest: Interest from municipal bonds and similar sources that does not appear in AGI.
2. Non-taxable Social Security benefits: The portion of Social Security not included in taxable income (up to 15% or 50% depending on income level) is added back for ACA MAGI.
3. Excluded foreign earned income: Income excluded under the foreign earned income exclusion (Form 2555) is added back.

For most people who receive wages, have no Social Security income, and do not hold municipal bonds, ACA MAGI equals AGI. The add-backs matter most for retirees (Social Security) and investors (tax-exempt bond interest).

Income that counts toward ACA MAGI

The following income sources count toward household MAGI for ACA subsidy purposes:

• Wages and salaries: All W-2 wages before any pretax deductions other than those excluded by law (e.g., 401(k) deferrals reduce AGI; health insurance premiums paid through a Section 125 cafeteria plan also reduce wages).
• Self-employment income: Net profit from Schedule C, after deductible business expenses. See the self-employed section below for additional deductions that reduce MAGI.
• Social Security benefits (full amount): Both the taxable and non-taxable portions of Social Security count for ACA MAGI. This is one of the most important differences between AGI and ACA MAGI for retirees.
• Rental income: Net rental income after deductible expenses (mortgage interest, taxes, insurance, depreciation, repairs).
• Interest and dividends: Taxable interest, qualified dividends, and ordinary dividends all count. Tax-exempt interest (such as from municipal bonds) must also be added back to AGI for ACA MAGI.
• Capital gains: Net capital gains from selling assets - including stocks, mutual funds, and real estate above the applicable exclusion - count toward MAGI. A large one-time capital gain can spike income over the 400% FPL cliff.
• Unemployment compensation: Fully includible in ACA MAGI under IRC 85.
• Alimony: Taxable alimony received under pre-2019 divorce agreements (deductible by the payer) counts. Alimony under post-2018 agreements is not includible for either party.
• IRA and retirement distributions: Taxable withdrawals from traditional IRAs, 401(k)s, and similar accounts count. Roth distributions generally do not count (since they are not includible in gross income when qualified).
• Gambling winnings: Includible in gross income and therefore in ACA MAGI.

Income that does NOT count

The following are excluded from ACA MAGI:

• Gifts and inheritances: Not includible in the recipient's gross income under IRC 102.
• Child support received: Not taxable income to the recipient.
• Workers' compensation: Excluded from gross income.
• Non-taxable veterans benefits: VA disability compensation and most other veterans benefits are not included in gross income.
• Welfare and public assistance: Generally not included in gross income (though SNAP, Medicaid, and similar are never taxable).
• Loans: Borrowed money is not income.
• Life insurance proceeds: Death benefits paid to beneficiaries are not gross income under IRC 101.
• Roth IRA qualified distributions: Tax-free when the account is five years old and you are 59.5 or older (or meet another exception).
• Home sale exclusion: Up to $250,000 ($500,000 for married filing jointly) of gain from the sale of a primary residence can be excluded.

The household income rule

ACA subsidy eligibility uses "household income" - not just the primary taxpayer's income. Household income includes the MAGI of:

• The taxpayer (you)
• Your spouse, if filing jointly
• Any dependent required to file a tax return (generally, dependents with income above the filing threshold)

This means a household with two earners must combine both incomes even if one spouse has no marketplace coverage. A dependent teenager with a summer job may add income to the household total if their earnings exceed the dependent filing threshold.

Household size (the denominator for the FPL calculation) is generally the number of people on your tax return - you, your spouse, and all dependents - regardless of whether each person is enrolled in marketplace coverage. The income limits guide shows the 400% FPL cutoff for each household size.

Self-employed filers: what to count

If you are self-employed, ACA MAGI is based on net self-employment income after deductions - not gross revenue. Key deductions that reduce your ACA MAGI:

• Business expenses (Schedule C): All ordinary and necessary business expenses reduce net profit. Lower net profit means lower MAGI.
• Self-employment tax deduction: Half of self-employment tax is deductible as an above-the-line deduction, reducing AGI and MAGI.
• Self-employed health insurance deduction: Premiums you pay for your own health insurance are deductible above the line, which reduces AGI and MAGI. Note: there is a circular calculation here if premiums are subsidized - IRS Publication 974 provides the iteration method.
• SEP-IRA or solo 401(k) contributions: Contributions to these retirement accounts reduce AGI and therefore MAGI. This is a common planning tool for self-employed people near the 400% FPL cliff.

For self-employed filers near the 400% FPL threshold, retirement contributions and other above-the-line deductions can meaningfully lower MAGI and preserve subsidy eligibility. Consult a tax professional for advice specific to your situation.

Key planning points

A few things to keep in mind when estimating your ACA MAGI for 2027:

• Estimate conservatively. If you underestimate income and receive too much advance premium tax credit, you must repay the full excess with no income-based caps under OBBBA rules for TY2027. See the ACA repayment rules guide for details.
• Report changes promptly. If your income increases or decreases significantly during the year, report it to your marketplace. This adjusts your advance credit and reduces year-end surprises.
• Watch for one-time income events. A bonus, asset sale, or retirement withdrawal in a single year can push MAGI over 400% FPL and eliminate the entire subsidy for that year.
• Use our calculator. Enter your estimated MAGI into our ACA subsidy calculator to see how your income level maps to a subsidy amount.