Reporting Income for ACA Subsidies

Your subsidy amount depends entirely on your estimated annual income. Report accurately to avoid surprises—underestimate and you'll owe money at tax time; overestimate and you'll miss out on help you deserve.

What Income Counts (MAGI)

The marketplace uses Modified Adjusted Gross Income (MAGI). This includes:

Counted: - Wages, salaries, tips (W-2 income) - Self-employment income (after business deductions) - Unemployment compensation - Social Security benefits (taxable portion) - Investment income (interest, dividends, capital gains) - Rental income - Alimony received (divorces finalized before 2019) - Retirement account distributions (401k, IRA withdrawals)

Not Counted: - Child support received - Gifts and inheritances - Workers' compensation - Veterans' disability benefits - Supplemental Security Income (SSI) - Loan proceeds

Household Income Rules

Your subsidy is based on total household income, not just yours:

• Tax filer - Your income counts
• Spouse - If married filing jointly, their income counts
• Dependents - Only if they're required to file taxes

Example: Family of 4. You earn $50K, spouse earns $30K, teenager has $3K summer job (below filing threshold). Household income = $80K.

How to Estimate Annual Income

For W-2 Employees

1. Take your year-to-date earnings from recent pay stub
2. Calculate monthly average
3. Project to full year
4. Add expected bonuses, overtime, raises

Example: April pay stub shows $20,000 YTD over 4 months. Monthly average = $5,000. Annual projection = $60,000. Expecting $3,000 bonus = $63,000 total.

For Self-Employed/Freelancers

1. Start with projected gross revenue
2. Subtract business expenses
3. Subtract self-employment tax deduction (7.65% of net)
4. Subtract retirement contributions (SEP-IRA, Solo 401k)
5. Subtract health insurance premium deduction

Tip: Last year's Schedule C is a good starting point, adjusted for expected changes.

For Variable Income

If income fluctuates significantly:

• Average the last 2-3 years as baseline
• Adjust for known changes (new clients, lost contracts)
• Update the marketplace mid-year if reality differs significantly

The Tax-Time Reconciliation

When you file taxes, Form 8962 compares your estimated income to actual income:

• Estimated correctly: No change
• Income higher than estimated: You may owe back some subsidy
• Income lower than estimated: You get additional credit as refund

Repayment Caps (2024-2025)

If you underestimated income, there are limits on how much you repay:

Warning: Above 400% FPL, you repay the entire advance subsidy. This can be thousands of dollars.

When to Update Your Income

Report changes to the marketplace within 30 days if:

• You get a raise or new job
• You lose a job or income drops significantly
• You gain or lose a household member
• You get married or divorced
• You receive an inheritance or large capital gain

How to update: Log into HealthCare.gov → "Report a life change" → Update income

Income Strategies (Legal Ones)

You can legitimately reduce MAGI through:

Retirement Contributions

• Traditional 401(k): Reduces MAGI dollar-for-dollar
• Traditional IRA: Deductible if you qualify
• SEP-IRA / Solo 401(k): Great for self-employed

Self-Employed Deductions

• Business expenses
• Home office deduction
• Health insurance premium deduction
• Self-employment tax deduction

Timing Strategies

• Defer income to next year (if possible)
• Accelerate deductions into current year
• Harvest capital losses to offset gains

Caution: Don't manipulate income solely for subsidies. The IRS and marketplace share data.

Common Income Mistakes

1. Forgetting unemployment counts - It's taxable income
2. Using gross instead of net for self-employment
3. Forgetting spouse's income when married
4. Not updating after job change - Can cause big tax-time surprise
5. Counting child support - It doesn't count
6. Forgetting one-time events - Selling stock, retirement withdrawal

Documentation to Keep

Save these for tax time: - Pay stubs showing YTD earnings - 1099 forms (freelance, interest, dividends) - Unemployment statements - Self-employment income/expense records - Marketplace eligibility notices (Form 1095-A)

What If I Made a Mistake?

Discovered mid-year: - Log into HealthCare.gov - Update your income estimate - Subsidy adjusts going forward

Discovered at tax time: - Complete Form 8962 accurately - Pay back excess subsidy (up to caps) or receive additional credit - Consider adjusting next year's estimate

Next Steps

1. Gather income documents - Pay stubs, last year's tax return
2. Calculate projected annual MAGI
3. Check subsidy eligibility with our quiz
4. Update marketplace if income changes significantly