With my income, I’m barely over the eligibility limit for a premium subsidy. Is there anything I can do to lower my income so I become eligible?

Q. With my current income, I am not eligible for a premium subsidy–but I’m just barely over the limit. Is there anything I can do to lower my income as far as the exchange is concerned?

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. 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 most people, ACA-specific MAGI is the same as adjusted gross income, or AGI (from Form 1040). But if you have any tax-exempt Social Security income, tax-exempt interest income, foreign-earned income or housing expenses for Americans living abroad, you have to add those amounts to your AGI in order to get your MAGI.

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 used to be Line 37 on the regular 1040; it’s now Line 7 on the second page). 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.

[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.]

If you have access to an employer-sponsored pre-tax retirement plan like a 401(k), you can contribute to that in order to lower your MAGI. 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, keeping 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 2019 is $3,500 if you have individual coverage under your HDHP, or $7,000 if your HDHP also covers at least one other family member (these amounts will increase slightly in 2020, to $3,550 and $7,100).

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 towards covering the contributions you make to your IRA and HSA

***The following example is based on 2019 numbers, as official data on health insurance premiums in specific areas is not yet available for 2020***

To put all of this in perspective, consider a married couple with HSA-qualified health coverage and a combined household income of $80,000 – well above the MAGI cap for premium subsidy eligibility ($65,840 for a household of two in 2019). But assuming they have earned income (ie, their income isn’t all from investments and capital gains), they can each contribute up to $6,000 to an IRA for 2019, and they can contribute up to$7,000 to an HSA. Contributing the maximum amounts would bring their MAGI down to $61,000, which is well within the subsidy-eligible range.

Let’s say this couple lives in Norfolk, Virginia, and they’re both 55 years old. In 2019, if they just use their $80,000 MAGI, they don’t get any premium subsidies and the cheapest plan available to them in the exchange would cost $1,530/month. But if they contribute a total of $15,000 to their IRAs and HSA, they’ll get their MAGI down to $65,000, and they’ll qualify for $1,535/month in premium subsidies. That’s more than $18,000 in tax credits for the year, which is more than they contributed to their retirement accounts and HSA in order to become eligible for subsidies. In other words, the tax credits fully fund their savings, and then some!

To recap, if they end up with a MAGI of $80,000, they’re going to have to pay at least $18,360 in premiums for their health insurance, which works out to 23 percent of their income. That will leave them with a little over $61,000 left over to cover all of their other expenses for the year, including out-of-pocket medical costs (the $18,360 amount is just for the premiums on the cheapest plan available to them, which has a $7,900 out-of-pocket maximum for each of them). And they won’t have anything saved for retirement at the end of the year.

But by contributing a total of $15,000 to their IRAs and HSA, they can enroll in an HSA qualified plan for just $10/month in premiums after the subsidy is applied. They’ll still have $61,000 to work with as far as income during the year, and they’ll end the year with $15,000 spread across their retirement accounts and HSA (of course, the amount in their HSA will be reduced if they end up needing to withdraw money to pay for out-of-pocket medical costs, but they would have had to pay that money anyway, using after-tax funds, if they hadn’t contributed to their HSA).

To be clear, this scenario won’t work out the same way in all areas. If this couple lived in Phoenix and contributed enough to their retirement accounts and HSA to get their MAGI down to $65,000, they’d still qualify for a subsidy ($954/month), but they’d have to pay $319/month for the cheapest HSA-qualified plan available in the exchange. But the subsidy would still save them more than $11,000 over the course of the year, and if they’d kept their MAGI at $80,000, the cheapest plan they could get would have been $1,160/month.

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 if the contribution amounts are enough to get your MAGI into the subsidy-eligible range. If our couple in Norfolk is 35 instead of 55, their subsidy amount would be $600/month and they’d have to pay $247/month for the cheapest HSA-qualified plan. But if they skipped the retirement and HSA contributions and kept their MAGI at $80,000, they wouldn’t get any subsidy at all, and would have to pay at least $800/month for the cheapest plan available in the exchange.

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 if you enroll in a plan through the exchange for 2020 and don’t qualify for subsidies, you have until April 15, 2021 to contribute to an IRA and/or an HSA and reduce your MAGI for 2020 (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 will also serve to reduce your MAGI, since they reduce your AGI and don’t have to be added back to calculated the ACA-specific MAGI. These include things like alimony payments, student loan interest, tuition and fees, moving expenses, and the deductible portion of self-employment taxes. The deductions that reduce AGI are found on lines 23 to 35 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 in order 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 percent of 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 percent 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.

But new rules finalized in 2018 require applicants to provide proof of their income if they attest to an income over the poverty level and existing federal data shows that the applicant has income below the poverty level. So people who are scrambling to attain an income of at least the poverty level need to keep careful records of their income sources so that they can provide proof of income if the exchange requests it.

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 healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

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Brian T

This is a great write-up. Very clear. Thanks so much.

Louise Norris

Thank you! I’m glad it was helpful!


In the example you gave (couple making $80K), if they were self-employed, would they also be able to deduct their health insurance premiums from their ACA MAGI? Also, is there any combined limit based on income when taking ACA MAGI deductions? For example, If I’m self employed (married) and making $14,000 (the rest of my income coming from pensions, savings, etc.) can I take the $14,000 deduction (2020) for IRA contributions AND health insurance premium deductions (since combined would be greater then my self employment income)?

Louise Norris

Yes, the health insurance deduction is available to self-employed people, and it reduces MAGI for subsidy-eligibility determination. But that can be a bit of a circular question, since the lower the MAGI is, the higher the subsidy will be… which results in a smaller portion of the premiums being deductible (you can only deduct the after-subsidy portion of the premiums). Here’s more about how that works: https://www.healthinsurance.org/faqs/my-premium-subsidy-is-dependent-on-my-agi-but-im-self-employed-so-my-agi-is-dependent-on-my-premium-help/ Both deductions — IRA contributions and the self-employed health insurance deduction — are limited to no more than your earned income for the year. So you would not be able to use them… Read more »


I am trying to lower my AGI for my IBR student loan payments to be as low as possible. I was told my income was too high to deduct IRA contributions. My gross pay was 79K and expect that to rise next year to 100K gross. It seems even if I contribute more to my workplace 401K or separate IRA or Roth, I have no way of lowering my AGI for future help. Is my only option to put as much into my HSA, which only would lower so much? Appreciate any insight. Currently at 300K in student loan debt… Read more »

Louise Norris

As is always the case with questions related to a person’s specific tax situation, we advise you to consult with a tax professional who can take a look at all the variables affecting your situation. But just a few things to keep in mind: The above article pertains to ACA-specific MAGI. The calculation for MAGI under the ACA isn’t the same as the non-ACA MAGI calculations that people are accustomed to, and it’s also not the same as AGI for some people. I’m not familiar with the rules for IBR student loan repayments, but if they use AGI it could… Read more »