What Counts as Income for ACA Subsidies in 2027? MAGI Explained

Posted on by Neal Shanske | Category: ACA Marketplace

If you are trying to figure out whether you qualify for an ACA health-insurance subsidy in 2027, knowing your salary is not enough.

The Health Insurance Marketplace uses something called modified adjusted gross income, usually abbreviated MAGI.

For many households, MAGI will be fairly close to the adjusted gross income shown on their federal tax return.

But there are several traps.

A large capital gain can count.

Most retirement-account withdrawals can count.

Tax-exempt interest can count.

Even the portion of your Social Security benefits that is not taxable can count.

At the same time, gifts, child support, loan proceeds and Supplemental Security Income generally do not count as Marketplace income.

That can produce some surprisingly different answers for two households that appear to have similar spending power.

And in 2027, getting the number right is particularly important because your estimated household income determines whether you qualify for premium tax credits and how large those credits will be.

Quick Answer: What Income Counts for ACA Subsidies?

For Marketplace subsidy purposes, start with your expected adjusted gross income for the year of coverage.

Then add certain income that may not otherwise be taxable, including:

  • tax-exempt interest;
  • non-taxable Social Security benefits;
  • and certain excluded foreign income.

For many people, this Marketplace MAGI number will be the same as or very close to the AGI on their tax return.

But the calculation can become more complicated if you:

  • are self-employed;
  • sell stocks or other investments;
  • take IRA or 401(k) distributions;
  • receive Social Security;
  • own rental property;
  • have tax-exempt municipal-bond interest;
  • or have dependents who earn income.

Your 2027 Subsidy Is Based on Your Expected 2027 Income

This is the first rule to understand.

The Marketplace does not simply take the income from your most recent tax return and assume it will remain the same.

For 2027 coverage, you estimate what your household expects to earn during 2027.

HealthCare.gov specifically tells applicants that Marketplace savings are based on expected household income for the year in which they want coverage.

You can start with your most recent tax return, but then adjust for things you reasonably expect to change.

That might include:

  • a raise;
  • a new job;
  • retirement;
  • losing a job;
  • starting a business;
  • working fewer hours;
  • receiving Social Security;
  • or taking significant retirement-account withdrawals.

If your income changes during the year, you can and should update your Marketplace application.

The official HealthCare.gov explanation is available at HealthCare.gov’s guide to estimating household income.

What Is MAGI?

MAGI sounds considerably more complicated than it is for most people.

For ACA Marketplace purposes:

MAGI generally starts with adjusted gross income and then adds back a few specific types of otherwise excluded income.

Your adjusted gross income, or AGI, appears on Line 11 of Form 1040.

Marketplace MAGI generally adds:

  • excluded foreign earned income;
  • non-taxable Social Security benefits;
  • and tax-exempt interest.

It does not add Supplemental Security Income.

The IRS provides a more detailed explanation of household income for Premium Tax Credit purposes in its Premium Tax Credit questions and answers.

Does Your Salary Count?

Yes.

Wages from a job are among the most common sources of Marketplace income.

But the number you want is not necessarily the biggest number printed on your pay stub.

HealthCare.gov advises using federal taxable wages when that number appears on the pay stub.

If it does not, you may need to start with gross pay and account for certain pre-tax amounts taken from your paycheck, such as eligible contributions for:

  • health coverage;
  • retirement plans;
  • and some dependent-care benefits.

This is one reason a person earning a stated $75,000 salary might not have $75,000 of Marketplace MAGI.

Does Self-Employment Income Count?

Yes, but generally you use your net self-employment income after business expenses, not your total revenue.

Suppose your business brings in $100,000 during 2027 but has $40,000 of legitimate business expenses.

You would not ordinarily report $100,000 as self-employment income simply because that was the amount customers paid you.

The relevant income begins with what remains after allowable business expenses.

This can make estimating income difficult for freelancers, consultants, contractors and small-business owners whose revenue changes significantly from month to month.

HealthCare.gov specifically recognizes that income may be difficult to predict and allows applicants to update their estimates when circumstances change.

Do Capital Gains Count Toward ACA Subsidies?

Yes.

This is one of the most important rules for investors and early retirees.

Capital gains included in your adjusted gross income generally increase your Marketplace MAGI.

Imagine that your normal income is $55,000.

You then sell appreciated stock and realize a $35,000 taxable capital gain.

Your ACA subsidy calculation does not simply ignore the investment gain because it did not come from a paycheck.

That gain can increase the income used to calculate your subsidy.

This is particularly important near an ACA income threshold.

The timing of an investment sale can therefore have a much larger effect on health-insurance costs than someone might expect.

This does not mean you should make investment decisions solely for health-insurance purposes. Taxes, investment risk and your personal financial situation all matter.

But Marketplace coverage creates another reason to understand the income consequences before realizing a large gain.

Do Stock Dividends and Interest Count?

Generally, yes.

Investment income such as interest and dividends included in your AGI generally becomes part of Marketplace MAGI.

There is an additional wrinkle:

Tax-exempt interest can count too.

That surprises people who own municipal bonds.

The fact that interest is exempt from federal income tax does not necessarily mean it disappears for ACA subsidy purposes.

Tax-exempt interest is specifically one of the amounts added back when calculating Marketplace MAGI.

Does Social Security Count?

Yes.

For Marketplace MAGI, both taxable and non-taxable Social Security benefits are generally included.

This can surprise early retirees because only part of Social Security may appear as taxable income on a federal return.

The ACA calculation adds back the non-taxable portion.

HealthCare.gov instructs applicants to include the full Social Security amount before deductions.

Does SSDI Count?

Social Security Disability Insurance, or SSDI, generally counts as Marketplace income.

As with other Social Security benefits, the Marketplace calculation includes Social Security amounts that may not all be taxable for ordinary federal income-tax purposes.

Does SSI Count?

No.

Supplemental Security Income, or SSI, is specifically excluded from Marketplace MAGI.

This is an important distinction because SSDI and SSI are often confused.

Benefit Generally Counts as ACA Marketplace Income?
Social Security retirement benefits Yes
Social Security Disability Insurance (SSDI) Yes
Supplemental Security Income (SSI) No

Do IRA Withdrawals Count?

Most taxable traditional IRA withdrawals are included in adjusted gross income and therefore can affect Marketplace subsidies.

That matters greatly for retirees who have control over when they take distributions.

Suppose someone retires before age 65 and purchases health insurance through the Marketplace.

They might have relatively little wage income but withdraw $80,000 from a traditional IRA.

For ACA purposes, that taxable IRA distribution can make their household income look very different from what their paycheck suggests.

Do 401(k) Withdrawals Count?

Taxable distributions from traditional 401(k) accounts generally count as income because they are included in AGI.

Large withdrawals can therefore reduce or eliminate Premium Tax Credit eligibility.

This is especially relevant to people between retirement and Medicare eligibility who are relying on Marketplace health insurance.

Do Roth IRA Withdrawals Count?

Qualified Roth distributions generally do not become part of AGI and therefore ordinarily do not increase Marketplace MAGI.

That can make Roth funds useful in years when someone is trying to manage taxable income.

But Roth tax rules can become complicated, particularly for nonqualified withdrawals and conversions.

Do not assume every withdrawal bearing the word “Roth” receives identical treatment.

Do Roth Conversions Count?

A taxable Roth conversion generally increases adjusted gross income.

For example, converting $50,000 from a traditional IRA into a Roth IRA can add approximately $50,000 of taxable income before considering the specifics of your tax situation.

That additional AGI can affect ACA subsidy eligibility.

This is a particularly important planning issue for early retirees who are simultaneously:

  • using Marketplace insurance;
  • converting traditional retirement assets to Roth;
  • and trying to manage taxable income.

A Roth conversion that appears attractive from a long-term tax perspective can create a substantial short-term health-insurance consequence.

Does Rental Income Count?

Yes.

HealthCare.gov tells applicants to include net rental and royalty income.

Again, this is not necessarily your gross rent collected.

The tax treatment of rental property involves allowable expenses and deductions, and the resulting amount that flows into AGI can affect Marketplace income.

Does Unemployment Compensation Count?

Yes.

HealthCare.gov instructs applicants to include unemployment compensation received from the state.

Do Tips Count?

Yes.

Tips are income and should be included when estimating Marketplace household income.

Does Child Support Count?

No.

Child support is specifically excluded from the Marketplace income calculation.

This can produce a substantial difference between the money available to a household and the income used for ACA subsidy purposes.

Do Gifts Count as Income?

Generally no.

HealthCare.gov specifically lists gifts among the amounts that should not be counted as Marketplace income.

If a parent gives an adult child $10,000, for example, that gift is not treated like $10,000 of wages for the recipient’s ACA subsidy calculation.

Does Borrowed Money Count?

No.

Proceeds from loans generally do not count.

That includes money received from things such as:

  • student loans;
  • home-equity loans;
  • personal loans;
  • and bank loans.

You received cash, but you also incurred an obligation to repay it. It is not treated as income for this purpose.

Do Veterans’ Disability Benefits Count?

HealthCare.gov lists veterans’ disability payments among the types of income that should not be included in Marketplace income.

Does Workers’ Compensation Count?

Workers’ compensation generally does not count as Marketplace income.

Does Alimony Count?

It depends on when the divorce or separation agreement was finalized.

HealthCare.gov’s current guidance says to count alimony received from divorces and separations finalized before January 1, 2019.

Alimony from agreements finalized on or after January 1, 2019 generally is not included.

What About a Child’s Summer Job?

This is another area where families can easily overcount income.

A dependent’s income generally enters Marketplace household income only when that dependent is required to file a federal tax return.

If a teenager files a return even though they were not required to do so—for example, simply to recover taxes that were withheld—their income generally does not become part of Marketplace household income for that reason alone.

The filing thresholds can change from year to year, so check the current IRS rules rather than relying on an old dollar figure.

Who Is Included in the Marketplace Household?

For most people, the household includes:

  • the tax filer;
  • their spouse;
  • and people they will claim as tax dependents.

This is primarily a tax household, not merely a list of everyone who happens to live under the same roof.

Your roommate’s salary does not suddenly become your Marketplace income merely because you share an apartment.

On the other hand, a dependent may matter even if that dependent is not enrolling in Marketplace coverage.

Income That Usually Counts vs. Income That Usually Does Not

Income or Payment Generally Counts?
Wages Yes
Tips Yes
Net self-employment income Yes
Capital gains Yes
Interest Yes
Dividends Yes
Tax-exempt interest Yes
Net rental income Yes
Traditional IRA withdrawals Usually, to the extent taxable
Traditional 401(k) withdrawals Usually, to the extent taxable
Qualified Roth distributions Generally no
Taxable Roth conversion Yes
Social Security Yes, including non-taxable Social Security
SSDI Yes
SSI No
Unemployment compensation Yes
Child support No
Gifts No
Loan proceeds No
Workers’ compensation Generally no
Veterans’ disability payments Generally no

Can Deductions Reduce Your ACA Income?

Potentially, yes.

Remember that the starting point is adjusted gross income rather than gross income.

Certain allowable adjustments reported on your federal tax return can reduce AGI.

Examples may include eligible deductions for:

  • traditional IRA contributions;
  • student-loan interest;
  • certain self-employed expenses and deductions;
  • and other adjustments allowed on Schedule 1 of Form 1040.

Whether you qualify for a particular deduction depends on the tax rules applicable to you.

This is an area where estimating Marketplace income and tax planning overlap.

Example: A Family With $90,000 of Salaries

Suppose a married couple expects $90,000 of total taxable wages in 2027 and has no other meaningful income.

Their Marketplace MAGI may be relatively close to that figure.

This is the straightforward case most subsidy calculators appear to assume.

Example: $60,000 Salary Plus a $30,000 Capital Gain

Now suppose someone earns $60,000 but realizes a $30,000 taxable capital gain from selling stock.

They should not estimate Marketplace income as simply $60,000.

The investment gain generally increases AGI, potentially producing Marketplace income closer to $90,000 before other adjustments.

That could materially change the Premium Tax Credit.

Example: Retired Couple Living on Savings

Consider a household that spends $80,000 during the year but has only $45,000 of Marketplace MAGI.

That can happen.

Spending and income are not the same thing.

They may be living partly from:

  • cash accumulated in prior years;
  • the return of investment principal;
  • qualified Roth withdrawals;
  • or other sources that do not create an equivalent amount of current-year MAGI.

The Marketplace is interested in the income calculation, not simply how much money flowed through the checking account.

Example: A Retiree Takes a Large IRA Distribution

Now change the example.

The retiree has $40,000 of other Marketplace income and takes an additional $60,000 taxable traditional IRA distribution.

The household may now have approximately $100,000 of MAGI before considering other tax items.

That can dramatically change the subsidy.

This is why retirement withdrawals should not be treated as irrelevant simply because they are not wages.

Why This Is Especially Important Near an Income Limit

Small income-estimation errors may make relatively little difference for some households.

For others, they can be expensive.

Premium Tax Credits depend on income, household size and the cost of the benchmark Marketplace plan in your area.

A household near an eligibility boundary should therefore pay particular attention to:

  • capital gains;
  • retirement withdrawals;
  • Roth conversions;
  • investment income;
  • and unexpected year-end income.

A transaction that increases MAGI by $10,000 can have both a tax consequence and a health-insurance consequence.

What Happens If Your Income Estimate Is Wrong?

Your Marketplace subsidy is ultimately reconciled with your actual income when you file your federal tax return.

If you received advance Premium Tax Credits during the year, you generally reconcile those amounts using IRS Form 8962.

If your income turned out to be different from what you estimated, the credit you ultimately qualify for may differ from the advance subsidy that was applied to your monthly premiums.

This is why HealthCare.gov repeatedly advises consumers to update their Marketplace application when income changes.

Don’t Wait Until Tax Time to Report a Big Change

Suppose you estimated $60,000 of income when you enrolled.

In June you get a new job paying substantially more.

Or in September you sell an investment and realize a large gain.

You do not have to continue using the original estimate until the following year.

Update the Marketplace.

That can adjust the advance subsidy for the remainder of the year and reduce the chance of an unpleasant surprise when you file your tax return.

How to Estimate Your 2027 Marketplace Income

A practical approach is:

  1. Start with your latest federal tax return. Find AGI on Form 1040, Line 11.
  2. Adjust for changes you expect in 2027. Include raises, job changes, retirement and similar events.
  3. Add income you expect from investments, rentals, retirement withdrawals and other sources.
  4. Add non-taxable Social Security, tax-exempt interest and applicable excluded foreign income when calculating Marketplace MAGI.
  5. Account for allowable deductions that reduce AGI.
  6. Include the income of household members when Marketplace rules require it.
  7. Update the estimate during 2027 if reality changes.

HealthCare.gov also offers an income calculator designed to help applicants estimate annual Marketplace income.

Frequently Asked Questions

Does gross income determine ACA subsidies?

No. Marketplace subsidies generally use household modified adjusted gross income, or MAGI, rather than simply gross salary or the amount deposited into your bank account.

Is ACA MAGI the same as AGI?

Often it is close, but not always. Marketplace MAGI starts with AGI and generally adds non-taxable Social Security, tax-exempt interest and certain excluded foreign income.

Do capital gains affect ACA subsidies?

Yes. Taxable capital gains included in AGI generally increase Marketplace MAGI and can reduce your Premium Tax Credit.

Do dividends affect ACA subsidies?

Generally yes. Investment income included in AGI counts, and tax-exempt interest is specifically added when calculating Marketplace MAGI.

Does Social Security count toward Obamacare income?

Yes. Marketplace MAGI generally includes both taxable and non-taxable Social Security benefits.

Does SSI count toward Marketplace income?

No. Supplemental Security Income is excluded from Marketplace MAGI.

Do retirement withdrawals affect ACA subsidies?

Taxable traditional IRA and 401(k) withdrawals generally increase AGI and therefore can reduce ACA subsidies. Qualified Roth distributions generally do not increase AGI.

Does a Roth conversion affect ACA subsidies?

Usually yes when the conversion is taxable. The taxable amount generally increases AGI and therefore Marketplace MAGI.

Does child support count as income for ACA subsidies?

No. HealthCare.gov specifically excludes child support from Marketplace income.

Do gifts from family count as Marketplace income?

Generally no. Gifts are specifically listed by HealthCare.gov as amounts that should not be counted as income on a Marketplace application.

Does money from a loan count as income?

No. Loan proceeds such as student loans, home-equity loans and bank loans generally do not count as Marketplace income.

Does my teenager’s job income count?

It generally counts as household income only if the dependent is required to file a federal income-tax return. A dependent who files only to receive a refund when filing was not required generally does not have that income included for this purpose.

What year of income do I use for 2027 health insurance?

Estimate your expected household income for 2027. Your prior tax return is a useful starting point, but Marketplace savings for 2027 coverage are based on what you expect to earn during 2027.

For ACA Subsidies, Where Your Money Comes From Matters

Two households can spend the same amount of money and have very different Marketplace incomes.

One may be living from wages and taxable retirement withdrawals.

Another may be using cash accumulated in previous years and qualified Roth distributions.

Their lifestyles may look similar.

Their ACA subsidy calculations may not.

So before estimating your 2027 income, look beyond your paycheck.

Review investment gains, dividends, interest, Social Security, retirement distributions, self-employment income and the income of other people in your tax household.

Then update the Marketplace if those numbers change during the year.

For the official rules and the latest Marketplace guidance, see HealthCare.gov’s explanation of what counts as income and the IRS Premium Tax Credit guidance.