Reduce Your AGI to Save on Health Insurance Premium and Tax Credits

If you’re like many Americans, you’re probably looking for ways to lower your taxes and health insurance premiums. The Affordable Care Act (ACA) provides a number of ways to do this, but understanding how to optimize your coverage and minimize your expenses for ACA compliant health plans can be complex.

What is AGI?

Adjusted gross income (AGI) is your total income minus certain deductions and adjustments. It’s used to determine your eligibility for ACA premium subsidies.

How to Lower Your AGI

There are a number of ways to lower your AGI, including:

Contributing to a retirement account. Contributions to a 401(k), IRA, or other retirement account are deducted from your AGI.
Using a health savings account (HSA). HSAs are tax-advantaged accounts that can be used to pay for qualified medical expenses. Contributions to an HSA are deducted from your AGI.
Taking a home mortgage interest deduction. If you itemize your deductions, you can deduct the interest you pay on your home mortgage.
Making charitable contributions. Charitable contributions are deducted from your AGI if you itemize your deductions.

The Impact of Lowering Your AGI

Lowering your AGI can have a number of benefits, including:

Reduced health insurance premiums. If you qualify for ACA premium subsidies, the amount of your subsidy will increase as your AGI decreases.
Increased tax credits. The saver’s credit is a tax credit for low- and moderate-income taxpayers who save for retirement. The amount of the saver’s credit is based on your AGI.
Lower taxes. If you lower your AGI, you may be able to move into a lower tax bracket.

Important Considerations

There are a few important things to keep in mind when trying to lower your AGI:

You should not lower your AGI to the point where you lose access to important tax credits. For example, if you lower your AGI too much, you may lose your eligibility for the child tax credit.
You should consider the impact on your future taxes. If you take a deduction or contribute to a retirement account, you may have to pay taxes on the money later.
You should speak with a tax professional to determine the best way to lower your AGI. A tax professional can help you make sure that you are taking advantage of all of the available deductions and credits.

It is important to note that the ACA is a complex law with many different provisions. As a result, it is important to carefully research the law and consult with a tax professional to make sure that you are taking advantage of all of the available credits and deductions.

Example Case

Let’s say you are a single person with an AGI of $50,000. You contribute $6,000 to a 401(k) and $2,000 to an HSA. Your AGI is now $42,000.

As a result of lowering your AGI, you qualify for an ACA premium subsidy of $500 per month. In addition, you are eligible for the saver’s credit, which is worth up to $1,000.

Lowering your AGI has saved you $7,000 in health insurance premiums and taxes.

Conclusion

Lowering your AGI can be a great way to save money on health insurance premiums and taxes. However, it is important to carefully weigh the pros and cons before making any decisions about how to lower your AGI. If you need personal assistance from a licensed agent, please reach out to us today to discuss your options.