Which incomes are excluded from MAGI for ACA premium tax credits?
Executive summary
Modified Adjusted Gross Income (MAGI) for ACA premium tax credits starts with your federal adjusted gross income (AGI) and adds only three categories: tax‑exempt interest, non‑taxable Social Security benefits, and excluded (untaxed) foreign income — meaning most other tax‑excluded amounts and pre‑tax deductions generally do not get added back into MAGI (HealthCare.gov and related explainers) [1] [2] [3].
1. What MAGI is — and what the Marketplace actually adds back
The ACA’s MAGI used to determine premium tax credit eligibility equals your AGI plus three specific additions: untaxed foreign income, non‑taxable Social Security benefits, and tax‑exempt interest. HealthCare.gov states that MAGI “is adjusted gross income (AGI) plus these, if any: untaxed foreign income, non‑taxable Social Security benefits, and tax‑exempt interest,” and repeats that definition in its glossary [1] [2].
2. Which incomes are therefore excluded from MAGI — the headline answer
Because MAGI begins with AGI, most items that reduce taxable wages already are reflected in AGI and generally are not re‑added when computing ACA MAGI. Common exclusions (i.e., not added back) include pre‑tax employer benefits and employer‑excluded amounts that don’t appear in AGI — for example, employer‑paid health premiums, pre‑tax retirement contributions, and flexible spending account reductions, which are already omitted from Box 1 wages and AGI [3].
3. How retirement and HSA contributions affect your MAGI
Contributions to pre‑tax retirement plans or health savings accounts (HSA) lower AGI and therefore lower MAGI for subsidy purposes; those pre‑tax deductions are not re‑added under the ACA MAGI rule, and several consumer guides note taxpayers can reduce ACA MAGI by making such contributions [3] [4]. Healthinsurance.org also explains that tax deductions like HSA and pre‑tax retirement contributions reduce ACA‑specific MAGI [5] [4].
4. Special cases: Social Security, foreign income and tax‑exempt interest
The three narrow categories that do get added back are important and sometimes counterintuitive: Social Security benefits that are not taxable on your return are still included in MAGI; U.S. tax law exclusions for foreign earned income under IRC §911 (the foreign earned income exclusion) are added back as “untaxed foreign income”; and tax‑exempt interest (for example, municipal bond interest that’s exempt from federal tax) is counted in MAGI [3] [1] [2].
5. Lump sums, gambling, and other quirks — what available reporting says
Some sources note special treatment for lump‑sum receipts and certain winnings in related contexts (for example, rules about counting lottery/gambling winnings across months for Medicaid vs. Marketplace), but those detailed exceptions are described in consumer guides and may differ by program; healthinsurance.org warns lump sums are treated differently for Medicaid monthly eligibility versus annual Marketplace subsidy calculations and notes rare exceptions for large gambling/lottery amounts [5]. Available sources do not provide a complete list of every niche exception; consult a tax or Marketplace advisor for unusual income types [5].
6. Why this matters now: subsidies, the 400% FPL rule, and planning
MAGI determines subsidy eligibility and subsidy size; historically a 400% of Federal Poverty Level (FPL) cutoff applied, but laws through 2025 altered that cliff and expanded subsidies — still, MAGI remains the income baseline for those calculations, so whether an income item is added back or excluded can change subsidy eligibility materially [4] [6]. Consumer guides and tax planners highlight that maximizing allowable pre‑tax deductions can lower ACA MAGI and increase premium tax credits [7] [4].
7. Limitations, disagreements and where reporting stops
Federal guidance on MAGI for the ACA is consistent across HealthCare.gov and policy explainers: AGI plus the three specified additions [1] [2] [3]. However, practical complexity and program differences mean state Medicaid rules, timing (monthly vs. annual counting), and unusual income types can produce different outcomes; sources point to these programmatic differences and advise professional advice for complex cases [3] [5]. Available sources do not list every edge‑case income type or provide individualized tax advice — they do not, for example, enumerate treatment of every possible employer benefit or every state’s monthly Medicaid rules [3] [5].
Bottom line: For ACA premium tax credits, MAGI adds back only untaxed foreign income, non‑taxable Social Security, and tax‑exempt interest to AGI; most pre‑tax deductions and other common exclusions that lower your AGI do not get re‑added and therefore reduce MAGI and can improve subsidy eligibility [1] [2] [3].