Optimizing ACA Health Insurance and Taxes: A Comprehensive Guide

The Affordable Care Act (ACA) offers subsidies and tax credits to make health insurance more affordable for low- and moderate-income individuals and families. As illustrated by the recent post about a leanFIRE individual planning their financial future, understanding these provisions can significantly impact your financial wellness and tax optimization.

ACA Income Limits and Subsidies

The ACA uses your modified adjusted gross income (MAGI) to determine your eligibility for subsidies. MAGI is essentially your taxable income, with some adjustments. The maximum income levels to qualify for premium subsidies are as follows:

138% Federal Poverty Level (FPL): For individuals earning up to $18,735 in 2023 ($20,120 in 2024).
150% FPL: For individuals earning up to $21,275 in 2023 ($21,870 in 2024).

Impact of Different Income Sources on ACA Eligibility

When calculating your MAGI, remember to include all sources of income, including:

Wages
Interest
Dividends
IRA rollovers
Capital gains

Example:

Let’s say you have wages of $3,600, interest of $1,500, and dividends of $8,000 for 2024. Your MAGI would be $13,100, which falls within the 138%-150% FPL range, making you eligible for premium subsidies.

Tax Optimization Strategies

In addition to receiving subsidies, you can also optimize your taxes by utilizing options such as:

Roth IRA Conversions: Convert traditional IRA funds to a Roth IRA to avoid paying taxes on withdrawals in the future.
Tax-Gain Harvesting: Sell assets with capital gains to offset the income from withdrawals.
Maximizing Deductions: Take advantage of deductible expenses, such as mortgage interest and charitable contributions, to reduce your taxable income.

State-Level Considerations

State regulations can influence how you use ACA benefits. For instance, North Carolina has a flat 4.5% income tax that applies to wages, dividends, capital gains, and IRA rollovers. However, interest from T-Bills is not taxable at the state level.

Seek Professional Guidance

While the information provided in this blog can help you understand the basics of ACA insurance and tax optimization, it’s essential to consult with a licensed insurance agent or financial advisor for personalized guidance. They can assess your specific needs and income circumstances to develop a comprehensive plan that maximizes your savings and minimizes your tax liability.