Your income determines your subsidies
The Marketplace uses your Modified Adjusted Gross Income (MAGI) — not your take-home pay — to determine your eligibility for subsidies (premium tax credits) and Medicaid. Getting this number right means getting the right amount of help.
If you overestimate, you may miss out on savings. If you underestimate, you could owe money back at tax time. This guide helps you get it right.
What Counts vs. What Doesn't
For self-employed individuals, you report net income — after deducting business expenses.
✓ Counts as Income
- ✅ Wages, salary, tips
- ✅ Self-employment / freelance income (after deductions)
- ✅ Social Security benefits (retirement, disability)
- ✅ Unemployment compensation
- ✅ Alimony received (before 2019)
- ✅ Rental income
- ✅ Investment income / capital gains
- ✅ Taxable interest & dividends
- ✅ Retirement distributions (401k, IRA, pension)
✗ Does NOT Count
- ❌ Child support received
- ❌ SSI (Supplemental Security Income)
- ❌ Veterans' disability payments
- ❌ Workers' compensation
- ❌ Gifts or inheritances
- ❌ Life insurance payouts
- ❌ SNAP / food stamp benefits
- ❌ Tax-exempt interest
What Is MAGI and Why Does It Matter?
MAGI stands for Modified Adjusted Gross Income. The Marketplace uses this number — not your paycheck amount — to determine your eligibility for subsidies and Medicaid.
How MAGI Is Calculated
💡 Tip: Your AGI is on Line 11 of IRS Form 1040. This is the best starting point if your income is similar year-over-year.
Tax Form Quick Reference
If you have your most recent tax return handy, here's where to find the key numbers:
| Tax Form / Line | What It Shows |
|---|---|
| Form 1040 — Line 11 | Your Adjusted Gross Income (AGI) |
| Form 1040 — Line 2a | Tax-exempt interest income |
| Form 1040 — Line 6b | Taxable Social Security benefits |
| Schedule C — Line 31 | Net profit/loss from self-employment |
| Schedule SE | Self-employment tax (for deduction calculation) |
Estimating Income When It's Complicated
💼 Self-Employed / Freelancer
- Report net income (gross income minus allowable business expenses)
- Use Schedule C from your most recent tax return as your starting point
- If income varies, estimate your best projection for the year — you can update it anytime
- Deductible expenses include: office supplies, software/subscriptions, home office, business travel, professional fees, and health insurance premiums
📊 Unpredictable or Variable Income
- Look at the past 2–3 years of tax returns to find an average
- Project monthly income × 12 for an annual estimate
- Include known upcoming changes (new client, reduced hours, etc.)
- It's better to estimate slightly higher — you'll reconcile on your tax return
👨👩👧👦 Household Income (More Than One Person)
- Include income from everyone who files taxes together on one return
- If you claim a dependent who also has income, include their income too
- Household size matters — even small differences can affect subsidy eligibility
Frequently Asked Questions
Report your best estimate when you apply. If your income goes up or down significantly, log into your Marketplace account and update it. This prevents a surprise tax bill or repayment at the end of the year.
Yes — if you file taxes jointly, both incomes are included. If you file separately (unusual), you still need to include your spouse's income to calculate household income for Marketplace eligibility.
Use your best estimate for the current year, not just last year's taxes. If you expect to earn less, report that lower number — it may qualify you for better subsidies. You'll reconcile the actual amount when you file taxes.
It depends. If Social Security is your only income, it likely doesn't count toward MAGI for Marketplace purposes. But if you have other income too, a portion of your Social Security may be included. Call us if you're unsure — this is a common one.
That's okay. Estimate your expected income for the current year as best you can. Use pay stubs, bank statements, or client records as a guide. You are not required to have filed taxes to apply.
Yes — the Marketplace at HealthCare.gov has a built-in income calculator that walks you through it step by step. You can also call our team and we'll walk through it with you at no cost.