Understanding Employer-Sponsored Disability Income and MAGI for ACA


The Affordable Care Act (ACA) brought about significant changes in the way health insurance is regulated in the United States. One of the key components of the ACA is the use of Modified Adjusted Gross Income (MAGI) to determine eligibility for subsidies and premium tax credits. MAGI is a modified version of Adjusted Gross Income (AGI) that takes into account certain types of income and deductions.

Employer-Sponsored Disability Income

Employer-sponsored disability income is a type of insurance that provides income to employees who are unable to work due to a disability. This income is typically taxable and is included in MAGI. However, there are certain circumstances where employer-sponsored disability income may not be included in MAGI.

After-Tax Buy-Ups

An after-tax buy-up is an option that allows employees to purchase additional disability insurance coverage beyond what is offered by their employer. This additional coverage is typically funded with after-tax dollars, meaning that the premiums are not deductible from income.

MAGI Treatment of After-Tax Buy-Ups

According to the Internal Revenue Service (IRS), after-tax buy-ups on employer-sponsored disability insurance plans do not count towards MAGI. This is because the premiums for these buy-ups are paid with after-tax dollars and are not considered taxable income.

Implications for ACA Eligibility

This distinction between taxable and non-taxable disability income has implications for ACA eligibility. Individuals who receive employer-sponsored disability income that is included in MAGI may have a lower MAGI and qualify for subsidies or premium tax credits under the ACA. Conversely, individuals who receive employer-sponsored disability income that is not included in MAGI will have a higher MAGI and may not qualify for subsidies.

Additional Considerations

Non-Employer-Sponsored Disability Income: Private disability insurance purchased with after-tax dollars is also not included in MAGI.
Social Security Disability Insurance (SSDI): SSDI payments are taxable and are included in MAGI.
Medicare Advantage Plans: Medicare Advantage plans are an alternative to traditional Medicare. Enrolling in a Medicare Advantage plan may affect your eligibility for premium tax credits.


Understanding the different types of disability income and their MAGI treatment is essential for determining ACA eligibility and subsidy amounts. If you receive employer-sponsored disability income or are considering purchasing additional disability coverage, it is important to know how it will impact your MAGI. Consulting with a licensed insurance agent or healthcare navigator can help you navigate these complex issues and make informed decisions about your healthcare coverage.

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