How to Calculate Household Income for ACA Plans

Calculating your household income accurately is critical when applying for ACA (Affordable Care Act) health plans. It determines your eligibility for subsidies, tax credits, or Medicaid. The key is to use Modified Adjusted Gross Income (MAGI), which starts with your Adjusted Gross Income (AGI) from your tax return and adds specific non-taxable income like Social Security benefits and tax-exempt interest.

Key Steps to Calculate Household Income:

Start with AGI: Found on Line 11 of IRS Form 1040.
Add non-taxable income: Include tax-exempt interest, non-taxable Social Security benefits, and untaxed foreign income.
Adjust for future income: Account for expected changes like a new job or fluctuating earnings.

What to Include in MAGI:

Wages, salaries, tips
Self-employment income
Social Security benefits (including non-taxable portions)
Unemployment compensation
Investment income (e.g., dividends, capital gains)
Tax-exempt interest

What to Exclude:

Supplemental Security Income (SSI)
Child support received
Veterans’ disability payments
Gifts and inheritances

For Illinois residents, Medicaid eligibility depends on current monthly income, while ACA subsidies use projected annual income. If your income changes, update your Marketplace application promptly to avoid tax penalties or missed savings.

Accurate income reporting ensures you receive the right subsidies and avoid surprises during tax reconciliation.

How To Estimate Your Income For the ACA Health Insurance Subsidy

What Counts as Household Income

When it comes to the Affordable Care Act (ACA), understanding household income is essential for calculating subsidies. It all boils down to two key factors: who qualifies as part of your household and what types of income are included. Let’s break it down.

Who Counts in Your Household

Your ACA household includes you, your spouse (if you’re married and filing jointly), and anyone you claim as a tax dependent on your federal tax return. This rule applies regardless of whether those individuals are covered by your health plan or not.

For example, if you’re married and file jointly, both you and your spouse are counted in your household size. Any children, stepchildren, adopted children, or other dependents you claim on your tax return are also included. The size of your household plays a big role in determining subsidy eligibility since income thresholds are tied to the federal poverty level, which varies based on household size. Once you’ve figured out who’s in your household, the next step is determining which types of income count toward your Modified Adjusted Gross Income (MAGI).

Income Types to Include in MAGI

Your Modified Adjusted Gross Income (MAGI) includes a wide range of income sources from everyone in your household. Here’s what you need to include:

Wages, salaries, and tips from all jobs.
Self-employment income (net profit from your business).
Social Security benefits, including both taxable and non-taxable portions.
Unemployment compensation.
Investment income, such as interest from savings accounts, dividends, capital gains, and rental or royalty income.
Tax-exempt interest from municipal bonds (even though it’s tax-exempt).
Retirement or pension income from former employers.
Alimony payments from divorces finalized before 2019.
Untaxed foreign income that’s excluded from your tax return.

Essentially, most forms of income that contribute to your financial resources are included in MAGI. The table below provides a clear summary of what counts:

Income Type	Include in MAGI?	Notes
Wages, salaries, tips	Yes	Applies to all household members
Social Security benefits	Yes	Include non-taxable portion
Self-employment income	Yes	Net profit from business
Unemployment benefits	Yes	Full amount received
Tax-exempt interest	Yes	Typically from municipal bonds

Income Types to Exclude from MAGI

Not all income sources are included in your MAGI calculation, and knowing what to leave out is just as important. Here are some key exclusions:

Supplemental Security Income (SSI).
Child support payments received.
Gifts and inheritances (any amount).
Veterans’ disability payments.
Workers’ compensation benefits.
Loan proceeds.
Child tax credit payments.

These exclusions can make a significant difference in your final calculation. For example, while Social Security benefits are included, SSI payments are not. Similarly, child support and veterans’ disability payments are left out. The table below highlights the key exclusions:

Income Type	Include in MAGI?	Notes
Child support received	No	Excluded from calculation
SSI payments	No	Excluded
Gifts and inheritances	No	Any amount excluded
Veterans’ disability	No	Excluded from MAGI

Understanding these distinctions can help you avoid common errors, like mistakenly including child support or SSI in your income calculation. For those in Illinois, Illinois Health Agents offers personalized guidance to ensure your income is calculated correctly, helping you maximize your subsidy eligibility.

How to Calculate Household Income Step by Step

Now that you’re clear on which income types to include and exclude, let’s break down the steps to calculate your household income properly.

Start with Your Adjusted Gross Income

Your Adjusted Gross Income (AGI) is the starting point for determining your Modified Adjusted Gross Income (MAGI). You’ll find this figure on line 11 of IRS Form 1040 from your most recent tax return. Whether you filed individually or jointly with your spouse, this is where you begin.

If you don’t have your tax return handy, you can estimate your AGI by adding up all sources of income and subtracting any above-the-line deductions. These might include deductions for student loan interest, retirement contributions, or health savings account (HSA) contributions. That said, using the actual number from your Form 1040 ensures greater accuracy.

The next step involves making adjustments by adding back certain types of non-taxable income that were excluded from your AGI.

Add Non-Taxable Income to Get MAGI

Once you’ve determined your AGI, the next step is to include specific types of non-taxable income to calculate your Modified Adjusted Gross Income (MAGI). The key categories to add are:

Tax-exempt interest (such as interest from municipal bonds)
Non-taxable Social Security benefits
Untaxed foreign income

Here’s an example to illustrate: Let’s say your AGI from IRS Form 1040 is $40,000. You also receive $2,000 in tax-exempt interest from municipal bonds and $3,000 in non-taxable Social Security benefits. To calculate your MAGI, you’d add these amounts to your AGI:
$40,000 (AGI) + $2,000 (tax-exempt interest) + $3,000 (non-taxable Social Security) = $45,000 MAGI.

Adjust for Expected Income Changes

The last step is estimating your income for the upcoming coverage year rather than relying solely on last year’s figures. This is especially important because ACA subsidies are based on your expected annual income for the year you’re applying for coverage.

If you anticipate any changes, such as starting a new job, getting a raise, or earning additional income, you’ll need to project these adjustments. For instance, if you begin a new job in July with a monthly salary of $4,000, calculate the income for the remaining months of the year:
$4,000 × 6 months = $24,000. Add this to any income you earned earlier in the year from your previous job.

Don’t forget to account for bonuses, side business income, or other earnings. For variable or self-employment income, review past patterns, consider seasonal trends, and use documentation like contracts or invoices to make accurate projections.

Next, we’ll dive into how income calculation and subsidy eligibility are influenced by Illinois-specific rules.

Illinois-Specific Income Calculation Rules

Illinois applies federal MAGI (Modified Adjusted Gross Income) rules with its own state-specific adjustments that impact eligibility for ACA subsidies and Medicaid. Below, we’ll break down the key rules and resources available in Illinois, covering both general principles and the unique details relevant to the state.

Illinois Medicaid and Subsidy Rules

Illinois has expanded Medicaid eligibility, allowing adults between the ages of 19 and 64 to qualify with incomes up to 138% of the Federal Poverty Level (FPL). For 2025, this means an individual earning up to $20,783 or a family of four earning up to $43,056 can qualify. For children, the income threshold is even higher, extending up to 318% of the FPL.

One key difference in Illinois is how income is assessed. Medicaid eligibility is based on current monthly income, while ACA tax credits are determined using projected annual income. This distinction is critical for those with fluctuating earnings.

For instance, if you’re temporarily unemployed in March but expect to earn $35,000 for the year, you might qualify for Medicaid during that low-income month. However, your projected annual income would instead make you eligible for ACA subsidies, not Medicaid. This dual system offers a safety net for those with unpredictable income patterns.

Coverage Type	Income Basis	Adult Threshold (2025)	Family of 4 Threshold (2025)
Illinois Medicaid	Monthly income	Up to $1,732/month	Up to $3,588/month
ACA Premium Tax Credits	Annual projected income	$15,060 – $60,240	$31,200 – $124,800

Calculating Income with Variable or Self-Employment Earnings

If you’re self-employed or your income varies, calculating your annual MAGI can be tricky. Illinois residents in these situations need to adjust their income estimates based on expected changes throughout the year.

For self-employed individuals, the process starts with calculating gross receipts minus business expenses to determine net self-employment income. For example, if you experience a sudden income spike, you should document it with contracts or invoices and factor it into your annual projection.

Seasonal workers should also consider past earning patterns and industry trends. For instance, a tax preparer earning most of their income between January and April should calculate their total expected earnings for the entire tax season, rather than relying on monthly averages. Keeping detailed records, such as invoices or contracts, helps ensure accurate estimates. If you’re feeling overwhelmed, professional help is available to guide you through these calculations.

Getting Help from Illinois Health Agents

Navigating these income calculations can be challenging, but Illinois Health Agents offers personalized support to help residents determine their household income for ACA plans and understand how Illinois Medicaid rules might apply to their situation.

Their local expertise is especially helpful for complex cases. For example, in March 2024, Hendrix Ihezie, a self-employed individual, received assistance from Mike Desnoyers of Illinois Health Agents to secure health insurance for his family. Ihezie shared:

"I was worried about getting health insurance as a self-employed individual but Mike found THE perfect policy for me and my family. He was never pushy and instead just made sure that he broke every single thing down and gave me all the information I could think of and couldn’t think of."

Illinois Health Agents specialize in helping residents identify which income sources to include in their MAGI calculations, accurately estimate variable income, and navigate the overlapping rules of Illinois Medicaid and the ACA Marketplace. They also assist with updating Marketplace applications when income changes, ensuring residents maintain their subsidy eligibility throughout the year.

Their deep understanding of Illinois programs, such as All Kids and other state-specific coverage options, makes them a valuable resource for residents looking to optimize their health coverage. Accurate income reporting is essential to staying compliant and securing the right coverage.

Reporting Income Changes and Staying Compliant

It’s crucial to update your Marketplace application as soon as your income changes. This helps you avoid overpaying subsidies or missing out on potential savings.

Why You Must Report Income Changes

The subsidies you receive through the Affordable Care Act (ACA) are based on your expected annual household income, not what you earned the previous year. Any difference between your estimate and your actual income will be reconciled at tax time.

If your income increases and you don’t report it, you might receive more subsidies than you’re entitled to, and you’ll be required to pay back the excess. For instance, if you estimate earning $40,000 but actually make $50,000, you could owe the IRS hundreds or even thousands of dollars in premium tax credits.

On the flip side, if your income decreases and you don’t update your application, you could miss out on extra savings. In some cases, a drop in income might even make you eligible for Illinois Medicaid if it falls below the Medicaid threshold.

To avoid these issues, report any income changes within 30 days of when they happen.

Required Documents for Income Verification

When you update your income, the Marketplace will ask for specific documents to verify the change. Having these ready can save you time and prevent delays.

For employed individuals: Provide recent pay stubs, typically covering the last 4–6 weeks, showing any changes in your earnings.
For self-employed individuals: Submit detailed records such as self-employment ledgers, bank statements showing business deposits, and contracts or invoices that reflect future income. Keep thorough records in case additional verification is needed.
Other income sources: Social Security recipients should use benefit award letters, unemployment recipients need benefit statements, and those with investment income should provide 1099 forms or bank statements showing interest or dividend payments.

If you’re transitioning between income sources – like moving from a job to self-employment – you may need to provide documentation for both your previous and new income to give a full picture of your financial situation.

Once your documents are ready, you can proceed to update your Marketplace application.

How to Update Your Marketplace Application

To update your income, log in to your Marketplace account and select "Report a Life Change" (or a similar option). Update your household and income details, upload the necessary documents, and review the recalculated eligibility.

Make sure to provide accurate and complete information about your household members and all income sources. The system will ask for details like the type of income change, the date it took effect, and your new expected annual income. If your income varies, accuracy becomes even more crucial.

After submitting, review your updated eligibility notice carefully. The Marketplace will adjust your premium tax credits and monthly premiums accordingly. You’ll also receive a notice explaining any changes to your coverage or costs.

For more complex situations, such as juggling multiple income sources or transitioning between Medicaid and Marketplace coverage, local experts can guide you through the process. Illinois Health Agents offer personalized assistance to ensure your income changes are reported correctly and that you’re maximizing your benefits.

"We’re here to help you and your family navigate the healthcare system from beginning to end."

Recognized as a "Marketplace Elite Circle of Champions", Illinois Health Agents have the expertise to help Illinois residents stay compliant and make the most of their coverage options.

Act quickly to protect your finances. Whether your income goes up or down, keeping your Marketplace application updated ensures you receive the correct subsidy amount and avoid surprises when it’s time to file taxes.

Key Points to Remember

When calculating household income for ACA enrollment, there are a few important steps to follow. Start with your most recent Adjusted Gross Income (AGI), then add any non-taxable income, and make sure to include income from all members of your tax household.

To determine your annual income, multiply your pay per period by the total number of pay periods. For instance, if you earn $500 every two weeks, your annual income would be $13,000. If your income varies – like in the case of self-employment – use your best estimate based on current contracts, seasonal trends, and any expected changes.

It’s equally important to know what not to include. Exclude income sources like Supplemental Security Income (SSI), child support, gifts, inheritances, and life insurance payouts. However, make sure to include wages, self-employment earnings, unemployment benefits, retirement income, and investment gains.

Accuracy matters. For 2025, the ACA affordability threshold is set at 9.02% of household income. Any discrepancies between your estimated and actual income will be addressed during tax reconciliation. Overestimating your income might mean missing out on savings, while underestimating could result in having to repay premium tax credits.

If your income situation is complex – such as juggling multiple sources, seasonal work, or changing job types – consulting a professional can make a big difference. For example, Illinois Health Agents can provide tailored advice to ensure you meet Illinois-specific requirements and optimize your subsidies.

Finally, staying organized is key. Keep thorough records and update your Marketplace application whenever your income changes. This helps protect both your coverage and your finances by minimizing the risk of errors affecting your subsidies or tax credits.

FAQs

How does having an inconsistent income affect my eligibility for ACA subsidies and Medicaid in Illinois?

If your income changes throughout the year, it can impact your eligibility for ACA subsidies and Medicaid in Illinois. These programs base eligibility on your Modified Adjusted Gross Income (MAGI), which is typically an estimate of your income for the upcoming year. As your income fluctuates, the financial assistance you qualify for – or even your Medicaid eligibility – might shift.

To get a clearer picture and select the right plan for your needs, it’s a good idea to consult with a licensed insurance agent. They can walk you through the details, explain your options, and help you stay aligned with ACA guidelines. Having expert guidance can make managing these changes a lot less overwhelming.

What happens if I don’t update my Marketplace application when my income changes?

Failing to update your Marketplace application when your income changes can lead to some serious headaches. If your income goes up and you don’t report it, you could end up receiving more financial help than you actually qualify for. The catch? You might have to pay back some – or even all – of those extra subsidies when tax season rolls around.

On the flip side, if your income drops and you don’t update your application, you could miss out on extra savings. That might mean lower premiums or even better cost-sharing reductions, which could make a big difference in your monthly expenses.

The best way to avoid these problems? Report income changes as soon as they happen. Keeping your information up to date ensures your coverage and financial assistance stay accurate, saving you from unwelcome surprises when it’s time to file taxes.

How do I estimate my income for ACA plans if I’m self-employed or have unpredictable earnings?

If you’re self-employed or have an income that varies, figuring out your annual income for ACA plans can be challenging. But getting as close as possible is key to ensuring your premium tax credits are accurate. A good starting point is to look at your income history – this could include tax returns, invoices, or bank statements from the past year. Be sure to factor in any consistent income sources, seasonal ups and downs, or expected business growth when making your estimate.

To get a clearer picture, include all taxable income sources. This might mean freelance earnings, tips, or even rental income. If your income shifts during the year, don’t worry – you can update your estimate with the ACA Marketplace to adjust your coverage or subsidy accordingly. For expert guidance, Illinois Health Agents can walk you through the process and help you find an ACA plan that fits your situation.