What Counts as Income for the ACA Premium Tax Credit (MAGI)

The ACA premium tax credit uses "modified adjusted gross income" (MAGI), defined at 26 U.S.C. §36B(d)(2)(B) as adjusted gross income plus three add-backs — any foreign earned income excluded under section 911, tax-exempt interest, and the portion of Social Security benefits that isn't otherwise taxed. It is a household total across everyone required to file a tax return, not just the applicant.

What does this mean for you? Work out your own number: ACA subsidy cliff calculator

Every ACA subsidy calculation — including the 400% poverty-line cliff — runs on one specific income figure, and it isn’t simply “adjusted gross income” or “taxable income.” Getting it right matters because the three add-backs below are exactly the kind of income people forget to count until a Marketplace redetermination or a Form 8962 reconciliation catches it.

The definition, precisely

26 U.S.C. §36B(d)(2)(B) defines MAGI for the premium tax credit as adjusted gross income (the number on the last line of the income section of Form 1040), increased by:

1. Foreign earned income excluded under section 911 — money a U.S. citizen or resident earned abroad and excluded from gross income under the foreign earned income exclusion. It’s excluded from income tax, but it’s added back for this specific calculation.
2. Tax-exempt interest — interest that’s exempt from federal income tax, most commonly from municipal bonds, reported on Form 1040 but not included in AGI.
3. The nontaxable portion of Social Security benefits — the part of Social Security income that the ordinary Social Security taxability formula (26 U.S.C. §86) doesn’t require you to include in gross income. Someone whose only income is Social Security may have $0 in taxable benefits and still have that full amount count toward ACA MAGI.

It’s a household total, not just yours

MAGI for the premium tax credit adds together the MAGI of everyone in the tax household required to file a return — the taxpayer, spouse if filing jointly, and any dependent whose income is high enough that they’re required to file. A dependent who earns too little to be required to file doesn’t add their income to the household total, even if they technically have some.

Why the add-backs matter more than they look

Someone retired and living mostly on municipal bond interest and Social Security can have a very low taxable income and a much higher MAGI once both add-backs apply — which changes what percentage of the poverty line their household sits at, and therefore both their subsidy and, since 2026, how much of an overestimate they’d have to repay in full (see how to stay under the subsidy cliff).

Once you know your MAGI, the ACA subsidy cliff calculator turns it into your estimated credit and shows exactly how far you sit from the 400% cliff.