Obamacare Premium: How Do Expenses Impact Your Qualification?

If you’re nearing the age of 26 and about to lose your parents’ health insurance, you might be wondering how the Affordable Care Act (ACA) will affect you. One common question is how your income is calculated when determining your eligibility for premium subsidies.

Understanding Your Modified Adjusted Gross Income (MAGI)

The ACA uses your Modified Adjusted Gross Income (MAGI) to determine your eligibility for premium tax credits. MAGI is similar to your Adjusted Gross Income (AGI) but with a few key differences. One of the main differences is that MAGI excludes certain deductions and exemptions that can reduce your AGI.

For example: If you’re self-employed, your MAGI will include your business income minus eligible business expenses. This means that your MAGI may be lower than your AGI if you have significant business expenses.

How Expenses Affect Your Obamacare Premium

When it comes to calculating your Obamacare premium, your expenses can have a significant impact. By reducing your MAGI through eligible business expenses, you can potentially qualify for lower premiums or even premium subsidies.

For example: Let’s say you make $100,000 per year before business expenses. However, you have $30,000 in eligible business expenses. Your MAGI would be $70,000. This could potentially lower your premium eligibility and make you eligible for premium subsidies.

What Expenses Can I Deduct for MAGI?

Not all expenses can be deducted from your MAGI. Only eligible business expenses can be used to reduce your MAGI. Some common eligible business expenses include:

Home office expenses
Car expenses
Travel expenses
Equipment expenses
Advertising expenses

What Doesn’t Impact Your MAGI?

It’s important to note that some expenses do not impact your MAGI. These expenses include:

Personal expenses
Student loan interest
Charitable contributions

Is it Worth Deducting Expenses for Obamacare?

Whether or not it’s worth deducting expenses for Obamacare depends on your individual circumstances. If you have significant business expenses, deducting them can potentially lower your MAGI, qualify you for lower premiums, and make you eligible for premium subsidies.

However, it’s important to consult with a tax professional to determine which expenses are eligible for deduction and to ensure that you’re not overestimating your expenses. You need to make sure the income you report on your tax return is accurate. Otherwise, if you underestimated your income and got more subsidy than you were eligible for, you will need to pay back the extra subsidy when you file your taxes.

Conclusion

Understanding how expenses impact your Obamacare premium is essential for planning your health insurance coverage. By maximizing eligible business expenses, you can potentially lower your MAGI and qualify for lower premiums or premium subsidies. However, it’s important to be accurate on your tax returns to avoid potential penalties. Seeking guidance from a tax professional can help you navigate these rules and determine the best approach for your specific circumstances.