When you apply for marketplace coverage, you are asked to predict your household income for the coming year. That prediction sets your premium subsidy, your eligibility for cost-sharing reductions, and even whether you are routed to Medicaid. It is the most consequential number on the application — and the one people most often guess at.
The income that counts: MAGI
The marketplace uses modified adjusted gross income (MAGI). For most people, MAGI starts with the adjusted gross income on your tax return, then adds back three items:
- Non-taxable Social Security benefits
- Tax-exempt interest
- Foreign income excluded from taxes
What usually counts vs. what usually does not
| Counts | Generally does not count |
|---|---|
| Wages, salary, tips, bonuses | Child support received |
| Net self-employment income | Supplemental Security Income (SSI) |
| Unemployment compensation | Gifts and most loans |
| Social Security (including the non-taxable part) | Veterans' disability payments |
| Retirement distributions, pensions, capital gains | Roth IRA qualified withdrawals |
Pre-tax contributions to a 401(k), traditional IRA, or HSA reduce your MAGI — a legitimate way some households manage their subsidy.
Whose income to include
Include everyone you will claim on your federal tax return: you, your spouse if filing jointly, and dependents who are required to file a return. A teenager with a small summer job usually does not count; a dependent adult child with substantial earnings may.
If your income is steady
Start with this year's pay, then adjust for anything you know is coming — a raise, reduced hours, retirement, or a new job. That is usually close enough.
If your income is irregular
- Average the last two or three years of net income as a baseline.
- Adjust for known contracts or clients you have already lined up.
- Subtract business expenses — self-employment income is counted after expenses, not gross.
- Revisit mid-year and update the marketplace if you are running ahead or behind.
Freelancers can find more planning tips in our health insurance guide for freelancers.
Why accuracy matters more than ever
Starting with 2026 coverage, the limits on repaying excess subsidies were removed, so underestimating now carries real risk. Overestimating costs you subsidy during the year but is corrected as a refund at tax time. Read how subsidy repayment works now.
The Medicaid line
In states that expanded Medicaid, households under about 138% of the federal poverty level are typically directed to Medicaid rather than marketplace subsidies. See our Medicaid eligibility guide.
Want help pinning down the right income figure? Our free tool compares plans across top carriers and shows what you would actually pay in about 60 seconds — no obligation, and a licensed agent reviews your options with you. Get your free quote →