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Since a lower income results in a larger subsidy, is there anything I can do to reduce my income under ACA rules?

Since a lower income results in a larger subsidy, is there anything I can do to reduce my income under ACA rules?

Q. Since a lower income results in a larger health insurance premium subsidy, is there anything I can do to lower my income as far as the exchange is concerned?

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Modified Adjusted Gross Income (MAGI)

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A: Your best bet is to talk with an accountant. They are trained to spot places where you might be missing out on deductions and tax breaks, and the money you spend to hire one will be well spent.

That said, there are some basics to keep in mind. And we can start with the fact that the rules are a lot different from 2021 through 2025, as a result of the American Rescue Plan (ARP) and the Inflation Reduction Act. The ARP, aimed at helping Americans recover from the COVID pandemic, made premium subsidies larger and eliminated the “subsidy cliff” in 2021 and 2022, And the Inflation Reduction Act extends those provisions through 2025.

So subsidies are available to people with income above 400% of the poverty level (the income cap for subsidy eligibility in prior years) if they would otherwise have to spend more than 8.5% of their income to purchase the benchmark plan (second-lowest-cost silver plan).

This makes it less important for people to bring their ACA-specific modified adjusted gross income down to under 400% of the poverty level, as subsidies now extend well above that income level depending on the circumstances. (Older people and people in areas where health insurance is more expensive can have incomes well above 400% of the poverty level and still qualify for a subsidy, whereas younger people and people in areas where coverage is less expensive may still find that they don’t qualify for a subsidy even with an income a little above 400% of the poverty level; this chart shows some specifics that help to make this clear.)

The open enrollment period for health insurance runs from November 1 to January 15 in most states (some state-run exchanges have different deadlines). The enrollment window applies both on-exchange and off-exchange, but premium subsidies are only available in the exchange. So if you’re subsidy-eligible (and most people are), you’ll want to make sure you sign up for coverage through the exchange during the open enrollment period.

Although the ARP and Inflation Reduction Act have made subsidies larger and more widely available, the specifics of how income is calculated under the ACA remain the same. Here’s how it works:

ACA premium subsidies are based on modified adjusted gross income (MAGI), but the calculation for it is specific to the ACA (and different from the general MAGI rules). For the most part (unless your income is very low, which is discussed at the end of this article), a lower MAGI will result in a larger premium subsidy.

For most people, ACA-specific MAGI is the same as adjusted gross income, or AGI (from Form 1040, line 11). But if you have any tax-exempt Social Security income, tax-exempt interest income, or untaxed foreign income, you have to add those amounts to your AGI to get your ACA-specific MAGI.1

Reduce your MAGI with a retirement plan, HSA contributions, and self-employed health insurance premiums

You can reduce your MAGI by earning less money, but a lot of people prefer to look for deductions instead. Consider the available deductions on your tax return that are above the line that shows your AGI (this is on Line 11), since reductions to your AGI will also reduce your ACA-specific MAGI.

If you’re not already contributing the maximum allowable amount to an individual retirement account (IRA), doing so would lower your MAGI (it has to be a traditional IRA; contributions to a Roth IRA are not tax-deductible). You and your spouse can each contribute to an IRA, further lowering your total household MAGI. Keep in mind that if you also have a retirement plan at work, the amount of deductible contributions you can make to a traditional IRA depends on your income.

(Note that the general MAGI calculations require you to add back traditional IRA contributions, but ACA-specific MAGI rules are different–your deductible traditional IRA contributions do lower your ACA-related MAGI.)2

If you have access to an employer-sponsored pre-tax retirement plan like a 401(k), you can contribute to that to lower your MAGI (note that if your employer offers health benefits, it’s unlikely that you’ll qualify for a Marketplace subsidy; here’s more about that).

If you’re self-employed, you can set up a self-employed retirement plan. SEP IRA, SIMPLE IRA, or Solo 401(k) are all options — talk with your accountant to see which one will work best for you. Keep in mind that these retirement plans for self-employed people have contribution limits that are potentially much higher than traditional IRAs, making them a good option if you’re trying to reduce your MAGI. Depending on your income, you may also be able to make tax-deductible contributions to a traditional IRA.

If you have an HSA-qualified high-deductible health plan (HDHP), contributing to an HSA (health savings account) will also lower your MAGI. The maximum contribution amount in 2024 is $4,150 if your HDHP covers just yourself, and $8,300 if it also covers at least one other family member.3 You can also contribute up to an additional $1,000 if you’re 55 or older. You can make your 2022 HSA contributions anytime until the tax filing deadline, which is roughly April 15 of the following year.

Self-employed people can also deduct their health insurance premiums as a means of lowering their MAGI, but it gets a bit complicated if that’s the factor that makes you eligible for a premium subsidy.

Your subsidies might go a long way toward covering the contributions you make to your IRA and HSA

To put all of this in perspective, consider a married couple, each 55 years old, with HSA-qualified health coverage and a combined household income of $90,000. With the American Rescue Plan rules in place, this couple is eligible for a premium subsidy even though their income is well above 400% of the poverty level. But we’ll use this example to illustrate how their subsidy will increase if they make various pre-tax contributions.

Assuming they have earned income (ie, their income isn’t all from investments and capital gains), they can each contribute up to $8,000 to an IRA for 2024 ($7,000 plus a $1,000 catch-up contribution, since they’re over age 50),4 and they can contribute up to$10,300 to their HSAs, assuming they both have coverage under an HDHP and maintain separate HSAs so that they can each take advantage of the catch-up contribution allowance. Contributing the maximum amounts would bring their 2024 MAGI down to $63,700.

Let’s say this couple lives in Chicago, Illinois. In 2024, with the American Rescue Plan’s subsidy enhancements in effect, they qualify for a monthly subsidy of $754 if their MAGI is $90,000. But if their income is $63,700, they qualify for a subsidy of $1,043 per month (to make contributions to an HSA, they’ll need to buy an HSA-qualified plan, the cheapest of which is about $216/month in premiums after the subsidy is applied).5

That’s an extra $289 per month in subsidies, amounting to $3,468 for the year, just because they opted to make the maximum contributions to their IRAs and HSA. And that’s in addition to the normal tax advantage that goes along with those plans, in terms of not having to pay income tax on the contributions, and tax-free growth in the accounts.

Before the ARP, this couple would not have qualified for any subsidy at all with an income of $90,000, but would have qualified for a substantial subsidy with an income of $63,700 (not quite as large as it is under the ARP, but still very significant).

Younger applicants get smaller subsidies, but the general concept remains the same: Contributing to a retirement account and/or HSA will result in lower health insurance premiums, as long as your MAGI stays above the lower threshold for subsidy eligibility: At least 100% of the poverty level in states that haven’t expanded Medicaid, and above 138% of the poverty level in states that have expanded Medicaid.

You have until April to make the prior year’s HSA or IRA contributions

Another thing to keep in mind about HSA and IRA contributions: You can deposit money in those accounts at any time during the year or even in the first few months of the next year, as long as you make your contributions before the tax filing deadline.

So you’ll have until April 15, 2025 to make your 2024 contributions to an IRA and/or an HSA (assuming you have an HSA-qualified health plan) and reduce your MAGI for 2024. Premium subsidies are reconciled on your tax return, so that’s when you’d be sorting out the details with the IRS in terms of the exact amount of premium subsidy you were supposed to receive during the year.

Other deductions and their impact on MAGI

There are other deductions that will reduce your MAGI, since they reduce your AGI and don’t have to be added back to calculate the ACA-specific MAGI. These include things like alimony payments (from settlements executed before 2019; alimony from a settlement executed in 2019 or later is not counted), student loan interest, tuition and fees, educator expenses (up to the allowable cap, currently set at $300), moving expenses, and the deductible portion of self-employment taxes. The deductions that reduce AGI are found on lines 11 through 24 of Schedule 1 for Form 1040.

Itemized deductions like mortgage interest, charitable contributions, medical expenses, etc. (or the standard deduction instead) are subtracted after AGI is calculated. So they do not lower AGI and thus do not have an impact on MAGI.

What if you need to increase your MAGI to qualify for subsidies?

On the other end of the spectrum, people living in states that have not expanded Medicaid may need to increase their MAGI to qualify for a subsidy, since Medicaid is available in those states on a very limited basis, and premium subsidies in the exchanges are not available to households with incomes below 100% of the federal poverty level (FPL).

Navigators in those states recommend that residents keep track of every penny they earn, even from infrequent jobs. Some residents have been able to cobble together enough income from a variety of sources to get above 100% of poverty, even though the income from their primary job was too low to qualify for subsidies. Things like babysitting, selling extra garden produce, handyman work, and utilizing craft fairs to market a hobby like knitting or woodworking can sometimes make the difference.

If your income is very low and the marketplace is showing that you’re not eligible for Medicaid or any financial assistance with your coverage, you’re probably in the coverage gap. This article is a good summary of how you might be able to avoid the coverage gap.

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.


  1. Modified Adjusted Gross Income. Glossary. Accessed January 2024. 
  2. Modified Adjusted Gross Income under the Affordable Care Act – UPDATED WITH INFORMATION FOR COVID-19 POLICIES. UC Berkeley Labor Center. March 2021. 
  3. Revenue Procedure 2023-23. Internal Revenue Service. Accessed January 2024. 
  4. 401(k) limit increases to $23,000 for 2024, IRA limit rises to $7,000. Internal Revenue Service. November 2023. 
  5. See Plans and Prices. Accessed January 2024. 

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