Orlando Harmon
Income is a key factor in determining eligibility for medical insurance. In the US, financial eligibility for the premium tax credit, most Medicaid categories, and the Children's Health Insurance Program (CHIP) is determined using a tax-based measure of income called modified adjusted gross income (MAGI). MAGI is calculated by taking an individual's adjusted gross income (AGI) and adding tax-exempt interest, non-taxable Social Security benefits, and untaxed foreign income. This figure is then used to determine eligibility for premium tax credits and other savings on Marketplace health insurance plans. For those without an income, Medicaid may be an option, depending on the state. If an individual is self-employed, they may be eligible for the self-employed health insurance deduction, which allows them to write off their health insurance premiums on their taxes.
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What You'll Learn
- Eligibility for Medicaid and premium tax credits is determined by modified adjusted gross income (MAGI)
- Self-employed people may be able to deduct health insurance costs from their net profit
- Losing your job and income can qualify you for a special 60-day enrollment period
- You can update your Marketplace application if your income changes during the year
- Medical expenses exceeding 7.5% of your adjusted gross income can be tax-deductible
Eligibility for Medicaid and premium tax credits is determined by modified adjusted gross income (MAGI)
MAGI is calculated using the adjusted gross income (AGI) from Form 1040, with three additional amounts: non-taxable Social Security benefits, tax-exempt interest, and foreign-earned income and housing expenses for Americans living abroad. For many people, their MAGI is the same as or very close to their AGI. However, it is important to note that the Affordable Care Act (ACA) has its own calculation of MAGI, which differs from the calculations used for other purposes.
When determining eligibility for Medicaid and premium tax credits, some expenses can be subtracted, including scholarships and grants used for education, and certain American Indian/Native American income. Income received as a lump sum is counted as income only in the month it is received when determining eligibility for Medicaid. Additionally, if an individual receives advance premium subsidies based on their projected MAGI, the amount must be reconciled on their tax return based on their actual MAGI for the year.
It is important to understand the rules related to income-based Medicaid and Marketplace subsidies to know whether one is eligible for financial assistance with their coverage. For example, in states that have not expanded Medicaid, individuals who are in the coverage gap due to their income being below the poverty level may be able to enroll in a subsidized health insurance plan through the Marketplace if their income increases to at or above the poverty level. Similarly, in states that have expanded Medicaid, coverage may be available if an individual's household income is up to 138% of the federal poverty level.
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Self-employed people may be able to deduct health insurance costs from their net profit
In addition to health insurance premiums, through the self-employed health insurance deduction, you can also deduct dental insurance premiums and a capped amount of long-term care insurance. This deduction is for self-employed workers who have a net profit for the year and are not eligible for coverage through their or their spouse's employer. If you are eligible for a premium tax credit (premium subsidy), you can only deduct the part of the premiums you pay yourself.
The self-employed health insurance deduction is an adjustment to your income, so you can take it whether you choose to take the standard deduction or itemize your deductions. You can include 100% of what you paid for health insurance premiums, dental insurance premiums, and a limited amount of long-term care insurance premiums for yourself, your spouse, and your dependents.
The tax credits can be paid directly to health insurance carriers every month to reduce the amount that insureds have to pay for their coverage. People can also opt to pay the full price for a plan purchased through the exchange and then claim the tax credit in full on their tax returns.
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Losing your job and income can qualify you for a special 60-day enrollment period
Losing your job and your source of income can be scary, especially when it comes to your health insurance coverage. However, losing your employer-sponsored health insurance because you were laid off counts as a qualifying event, which gives you a special 60-day enrollment period to continue your coverage from the date your old policy ended. This is true even if you have the option to elect COBRA, which lets you pay to stay on your job-based health insurance for a limited time, usually 18 months, after your job ends.
During this special enrollment period, you can apply for Marketplace coverage and find out if you qualify for a tax credit to lower your monthly insurance payment. This tax credit is based on your income estimate and household information. You can also look into free or low-cost coverage from Medicaid or the Children's Health Insurance Program (CHIP). If you're in one of the 40 states that have expanded Medicaid as of 2025, you may be eligible for coverage if your household income is up to 138% of the federal poverty level.
If you're in a state that hasn't expanded Medicaid and your projected household income for the year is below the poverty level, you may be able to enroll in a subsidized health insurance plan through the Marketplace later in the year if you find a job that puts your income at or above the poverty level. You can also consider a short-term health insurance plan, which is not regulated by the ACA, but these plans typically don't cover pre-existing conditions and may have caps on benefits.
Remember, special enrollment periods are also triggered by other major life changes, such as getting married, having a baby, adopting a child, moving to a different state, or gaining citizenship status. So, if you're facing a loss of income, be sure to explore all your options for maintaining your health insurance coverage during this challenging time.
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You can update your Marketplace application if your income changes during the year
When you fill out a Marketplace application, you need to estimate your household income for the year. The savings you qualify for are based on this expected income, not your income from the previous year. You'll be asked about your current monthly income and then about your yearly income. This way, you can qualify for the right amount of savings. If your income changes during the year, you can update your Marketplace application.
To update your application, choose the application you want to update and click "Report a Life Change" on the left-hand menu. Read through the list of changes and select the kind of change you want to report. You can then navigate through your application and report any changes to your income, household members, or address; new health coverage offers; and other information. After you’re done, you’ll get new eligibility results explaining your options to change plans. It's important to report any income changes as soon as possible. Failing to do so could mean missing out on savings or owing money back when you file your federal tax return. There is no limit to the number of times a person may report income, family, or insurance-eligibility changes to the Marketplace.
The Marketplace uses a number called "modified adjusted gross income (MAGI)" to determine if you qualify for savings. This figure is used to determine eligibility for premium tax credits and other savings for Marketplace health insurance plans and for Medicaid and the Children's Health Insurance Program (CHIP). MAGI is adjusted gross income (AGI) plus, if any, untaxed foreign income, non-taxable Social Security benefits, and tax-exempt interest.
If you're in the coverage gap because you're in a state that hasn't expanded Medicaid and your projected household income for this year is below the poverty level, you may be able to enroll in a subsidized health insurance plan through the Marketplace later in the year if you find a job that puts your income at or above the poverty level. Losing your employer-sponsored insurance because you were laid off counts as a qualifying event, and special enrollment continues for 60 days from the date your old policy ended. Depending on where you live, you may be eligible for Medicaid if you're without an income.
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Medical expenses exceeding 7.5% of your adjusted gross income can be tax-deductible
In the United States, medical expenses exceeding 7.5% of your adjusted gross income can be tax-deductible. This applies to medical and dental expenses you paid for yourself, your spouse, and your dependents during the taxable year. It is important to note that the deduction only applies to expenses not compensated by insurance or other means, regardless of whether reimbursement is received directly or payment is made on your behalf to the healthcare provider.
To claim this deduction, you must itemize your deductions for a taxable year on Schedule A (Form 1040). Medical care expenses eligible for deduction include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or payments for treatments affecting any structure or function of the body. This includes inpatient hospital care, residential nursing home care, acupuncture treatments, inpatient treatment for drug addiction, and prescription drugs. Transportation expenses primarily for and essential to medical care, such as gas, tolls, parking, and ambulance costs, may also be deductible.
Additionally, if you are self-employed and have a net profit for the year, you may be eligible for the self-employed health insurance deduction. This is an adjustment to income for premiums paid on a health insurance policy covering medical or qualified long-term care for yourself, your spouse, and dependents.
It is worth noting that certain medical expenses are not deductible, such as employer-sponsored premiums paid under a premium conversion plan or cafeteria plan. Funeral or burial expenses, non-prescription medicines, and cosmetic surgery are also not deductible.
While medical expenses exceeding 7.5% of your adjusted gross income can be tax-deductible, it is important to carefully review the eligibility criteria and consult official sources or tax professionals for specific guidance on your personal situation.
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Frequently asked questions
MAGI stands for modified adjusted gross income. It is used to determine eligibility for premium tax credits and other savings for Marketplace health insurance plans and for Medicaid and the Children's Health Insurance Program (CHIP).
Your MAGI is your adjusted gross income (AGI) plus tax-exempt interest, Social Security benefits not included in gross income, and excluded foreign income.
Depending on where you live, you may be eligible for Medicaid. If you want to purchase a private health plan, losing your employer-sponsored insurance counts as a qualifying event, which gives you a special enrollment period of 60 days from the date your old policy ended.
You can update your application by reporting changes as they happen. It is important to report any income changes as soon as possible to avoid missing out on savings or owing money back when you file your federal tax return.
You can deduct your medical and dental expenses if they exceed 7.5% of your adjusted gross income for the year. If you are self-employed, you can write off your health insurance premiums as an adjustment to your self-employment income.
