How to Calculate Income for Obamacare: MAGI, Deductions, and FPL

To calculate your income for Obamacare, start with your household’s adjusted gross income from your federal tax return and add three things back: any non-taxable Social Security benefits, tax-exempt interest, and untaxed foreign income. That total is your Modified Adjusted Gross Income, or MAGI, and it is the number the Marketplace uses to decide whether you qualify for premium tax credits in 2026 and how much you pay for coverage.¹ For most people who don’t have those three add-backs, MAGI is simply their AGI.

Who Counts in Your Household

Before you total any income, you need to know whose income to total. An ACA household is built around tax relationships, not who sleeps at your address. It includes the primary tax filer, a spouse filing jointly, and anyone claimed as a tax dependent. A roommate who files their own return is not part of your household. An unmarried partner counts only if you claim them as a dependent or you share a child together.²

Dependents who work create a wrinkle. A dependent’s income only gets added to your household total if they earn enough to be required to file a federal tax return. For 2026, a single dependent with only earned income generally isn’t required to file unless they earn more than $16,100.³ A teenager who makes $8,000 at a summer job? Their wages stay out. And if that dependent files a return voluntarily just to get a refund, their income still doesn’t count toward your MAGI.⁴

Income Sources That Go Into MAGI

MAGI begins with AGI, which pulls in most of the money that hits your bank account during the year. The main streams to include:⁵

Wages, salaries, and tips shown on your W-2.
Self-employment income, meaning your net profit after business expenses.
Unemployment compensation in full.
Investment income: taxable interest, dividends, rental income, and capital gains.
Retirement distributions from a traditional IRA, 401(k), or pension. Qualified distributions from a Roth account are excluded.
Gambling winnings, counted as gross income even if you had offsetting losses.
Alimony received, but only if your divorce or separation agreement was finalized before January 1, 2019. Agreements executed after that date made alimony non-taxable to the recipient.⁶

Social Security Gets Special Treatment

This is the source that trips people up most often. On a regular tax return, only a portion of your Social Security benefits might be taxable depending on your total income. For MAGI, the ACA counts the full benefit, including the portion that isn’t taxable. The statute specifically requires adding back “the portion of the taxpayer’s social security benefits which is not included in gross income.”⁷ Someone receiving $24,000 in annual Social Security benefits counts all $24,000 toward MAGI, even if only $12,000 shows up as taxable on their 1040.

The same rule applies to Social Security Disability Insurance (SSDI): it is a Social Security benefit and must be reported in full. Supplemental Security Income (SSI), by contrast, is never counted because it is a needs-based program, not a Social Security benefit.

The Three Add-Backs to AGI

Once you have AGI, three items get added on to reach MAGI:¹

Non-taxable Social Security benefits, meaning the portion of benefits that would not normally appear as taxable income.
Tax-exempt interest, such as interest from municipal bonds.
Untaxed foreign income excluded under the foreign earned income exclusion.

If none of these three apply to you, your MAGI equals your AGI, and the calculation is done.

What Stays Out of MAGI

Several types of money you receive don’t go into the calculation at all:⁵

Child support you receive.
Veterans’ disability payments for service-connected disabilities.
Workers’ compensation for workplace injuries.
Supplemental Security Income (SSI).
Gifts and inheritances.
Qualified distributions from a Roth account that meet IRS requirements.

Deductions That Lower Your MAGI

Your MAGI isn’t only about what comes in. Certain “above-the-line” deductions reduce AGI before you even get to the MAGI calculation, which means they directly shrink the number the Marketplace uses. These are adjustments on Schedule 1 of your tax return, not the standard deduction or itemized deductions you take later. The Marketplace does not let you subtract the standard deduction from your reported income.

The above-the-line deductions that most commonly lower MAGI include:

Health Savings Account contributions, up to $4,400 for self-only coverage or $8,750 for family coverage in 2026.⁸
Deductible contributions to a traditional IRA.
Student loan interest, up to $2,500 per year.
Half of self-employment tax, deductible by self-employed workers.
Self-employed health insurance premiums.
Qualified educator expenses for eligible teachers.

Stacking these can meaningfully lower the number the Marketplace sees. A self-employed enrollee who contributes to an HSA, deducts half of their self-employment tax, and writes off their own health insurance premiums can shave thousands off reportable income and pick up a larger premium tax credit as a result.

How That Number Gets Used: FPL and the 2026 Cliff

The Marketplace doesn’t stop at your raw MAGI. It compares your household MAGI to the federal poverty level for your household size and expresses your income as a percentage of FPL. That percentage determines eligibility. The 2026 poverty guidelines for the 48 contiguous states are:⁹

1 person: $15,960
2 people: $21,640
3 people: $27,320
4 people: $33,000

Divide your household MAGI by the poverty level for your household size to find your FPL percentage. A single person earning $31,920 lands at 200% FPL. A family of four earning $66,000 is also at 200% FPL.

For 2026, the biggest change is the return of a hard income cutoff. From 2021 through 2025, expanded subsidies eliminated the cap so that no one paid more than 8.5% of income toward their benchmark plan. Those enhanced credits expired at the end of 2025. For a single person in 2026, 400% FPL is $63,840. Earn $64,000 and you lose all premium tax credits, not just the portion above the threshold. If your MAGI is anywhere near that line, every deduction discussed above matters.

Estimating Your Income for the Coverage Year

The Marketplace asks for a forward-looking estimate for the coverage year, not last year’s tax return. That projection drives your advance premium tax credit, which is paid directly to your insurer each month. Salaried workers can usually project with confidence. Freelancers, gig workers, and anyone with variable income should account for seasonal swings and irregular payments; averaging the last two or three years and then adjusting for known changes is a reasonable starting point.

When your income changes during the year, report it to the Marketplace within 30 days. A new job, a raise, losing a job, or gaining or losing a household member all affect your subsidy amount. Even if more than 30 days have passed, report it anyway so future payments get adjusted. If you are close to 400% FPL, err slightly on the high side with your estimate. A smaller monthly subsidy topped up as a refund is far less painful than owing money.

Reconciling at Tax Time

When you file your federal return, you complete Form 8962 to reconcile the advance credits paid on your behalf with the credit you actually earned based on your final MAGI.¹⁰ If your actual income came in lower than your estimate, you get additional credit as part of your refund. If it came in higher, you owe back some or all of the excess.

For the 2026 tax year, the repayment rules are harsher than in prior years. The IRS previously capped how much you had to repay based on your income, with the cap as low as $375 for a single filer under 200% FPL. Those caps no longer exist. Starting with tax year 2026, you must repay the full amount by which your advance credits exceeded your actual premium tax credit, with no limit.¹¹ Someone who estimated $40,000 in income but actually earned $55,000 could owe back several thousand dollars in excess credits with no safety net. Combined with the return of the 400% FPL cliff, the margin for error in 2026 is thin, which is why calculating and updating your MAGI carefully is worth the time.

1
HealthCare.gov. Modified Adjusted Gross Income (MAGI) – Glossary
2
HealthCare.gov. Who’s Included in Your Household
3
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
4
CMS. Household Size and Types of Income to Include
5
HealthCare.gov. What’s Included as Income
6
Internal Revenue Service. VITA/TCE Volunteer Resource Guide with Updates
7
Office of the Law Revision Counsel. 26 USC 36B – Refundable Credit for Coverage Under a Qualified Health Plan
8
Internal Revenue Service. IRS Notice – HSA Contribution Limits 2026
9
U.S. Department of Health and Human Services. 2026 Poverty Guidelines
10
Internal Revenue Service. About Form 8962, Premium Tax Credit
11
Internal Revenue Service. Updates to Questions and Answers About the Premium Tax Credit