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Complete Guide to the Federal Poverty Level

Complete Guide to the Federal Poverty Level

Posted Nov 21, 2017 by Jenifer Dorsey

You likely know that the Affordable Care Act’s subsidies—both tax credits and cost-sharing reductions alike—are based on your income in relation to the federal poverty level.  

But what is the federal poverty level? Who sets it? And how does it factor into determining your subsidy amount, if any?

Federal Poverty Level FAQ

Here are 10 frequently asked questions about the federal poverty level, often referred to as the FPL, and answers to help you understand what it is and what it means to you.

  1. What is the federal poverty level?
  2. What are the federal poverty guidelines for 2016?
  3. Who determines the guidelines, and how are they used?
  4. Are the poverty guidelines the same for everyone?
  5. Are the poverty guidelines and poverty thresholds the same thing?
  6. Is my pre-tax income used to determine if I fall within poverty guidelines?
  7. Premium tax credits are available to help make health insurance affordable to families with incomes between 100 and 400 percent of the poverty line. What does this mean?
  8. What about Medicaid eligibility?  
  9. How do I calculate my percentage of federal poverty?
  10. How will my 2017 Obamacare subsidy be calculated if guidelines aren’t released until January?

What is the federal poverty level?

The federal poverty level is another way of referring to the federal poverty guidelines.

It is one measure of poverty within the United States and is released annually. There is one set of guidelines for the 48 contiguous states and the District of Columbia. Alaska and Hawaii each have their own set.

What are the federal poverty guidelines for 2018?

On January 31, 2017, the most recent Department of Health and Human Services poverty guidelines were released.[1] These guidelines are used when establishing 2018 subsidies and financial eligibility for other federal programs.

View the most recent federal poverty guidelines

Who determines the guidelines, and how are they used?

The U.S. Department of Health and Human Services issues the federal poverty guidelines annually to determine financial eligibility for certain federal programs and benefits.[2]

In addition to Obamacare subsidies and Medicaid, such programs and benefits include Medicare, the Children’s Health Insurance Program, Migrant Health Centers, Community Health Centers, Family and Planning Services, to name a few.

Are the poverty guidelines the same for everyone?

No. Family or household size is used to determine poverty guidelines.

Are the poverty guidelines and poverty thresholds the same thing?

No. They are the two main ways poverty is measured in the United States and serve different purposes.

As stated above, HHS issues poverty guidelines serve an administrative function. The U.S. Census Bureau issues poverty thresholds for statistical purposes.[3]

Preliminary poverty thresholds are released in January and final poverty thresholds are released in September the year after the year for which poverty is measured and are adjusted to the price level of the year for which poverty is measured, according to HHS.[4]

Characteristics used to determine poverty thresholds include family size, number of children and whether or not those in 1- or 2-person units are elderly.[5] The same poverty thresholds apply to 50 states and the District of Columbia.

Is my pre-tax income used to determine if I fall within poverty guidelines?

How an income is compared to federal poverty guidelines varies from agency to agency. HHS suggests contacting the office or organization administering the program to determine eligibility.[6]

To calculate ACA subsidies, HealthCare.gov and state-based exchanges use your modified adjusted gross income (MAGI), which is not a line on your tax return.[7]

Premium tax credits help make health insurance affordable to families with income between 100 and 400 percent of the poverty line. What does this mean?

First of all, premium tax credits are only available to those who purchase health insurance through the state-based and federally facilitated exchanges established under the Affordable Care Act.

Those who buy health insurance through the ACA exchanges can apply for premium tax credits as well as cost-sharing reductions—you must buy a silver plan to qualify for cost-sharing reductions. When you enroll in a qualified health plan, you must supply financial information to prove your eligibility.

In general, Obamacare subsidies are available based on the following income limits:

  • Premium tax credits – 100 to 400 percent of FPL[8]
  • Cost sharing reductions – 100 to 250 percent of FPL; you must also purchase a silver plan[9]

As for the term "poverty line," it joins the ranks of poverty level as yet another casual reference to the federal poverty guidelines.

How do I calculate my percentage of federal poverty?

To calculate your percentage of poverty, divide your income by the poverty guideline for your household size. Carry the decimal two places in your result; add a percentage sign, and you have your answer.

Federal poverty guidelines

Income ÷ poverty guideline for household size = percentage of poverty guideline

Example 1: You are a single individual with an income of $25,000. The 2017 poverty guideline for a one-person household is $12,060.[10]

$24,120 ÷ $12,060 = 2

2 x 100 = 200 – You are at 200 percent of the federal poverty guidelines and likely qualify for the tax credit in 2018.

Example 2:  You are married with three kids, and your household’s annual income is $150,000. The 2017 poverty guideline for a five-person family or household is $28,780.[11]

$150,000 ÷ $28,780 = 5.21

5.21x 100 = 521 – You are at 521 percent of the federal poverty guidelines and are unlikely to qualify for a subsidy.

How will my 2018 Obamacare subsidy be calculated if guidelines aren’t released until January?

Federal poverty guidelines are published annually and become effective each January.[12] They are calculated based on the previous calendar year and updated to reflect price levels in the year to come. As such, your 2018 subsidy eligibility is based on 2017 FPL.

If you need one-on-one help determining your subsidy eligibility and health insurance options, work with a licensed health insurance producer. Call the number at the top of your screen for assistance.

 

 

Originally posted Feb. 22, 2013. Reviewed and updated Nov. 21, 2017.


Legal Disclaimers

[1] U.S. Department of Health and Human Services. “Annual Update of the HHS Poverty Guidelines.” Office of the Federal Register. Jan. 31, 2017. https://www.federalregister.gov/documents/2017/01/31/2017-02076/annual-update-of-the-hhs-poverty-guidelines

[2] U.S. Department of Health and Human Services. “Poverty Guidelines: U.S. Federal Poverty Guidelines Used to Determine Financial Eligibility for Certain Federal Programs.” Published Jan. 31, 2017. https://aspe.hhs.gov/poverty-guidelines

[3] Office of the Assistant Secretary for Planning and Evaluation. U.S. Department of Health & Human Services. “Frequently Asked Questions Related to the Poverty Guidelines and Poverty.” Form Approved OMB# 0990-0379 Exp. Date 8/31/2017. http://aspe.hhs.gov/frequently-asked-questions-related-poverty-guidelines-and-poverty

[4] Ibid.

[5] Institute for Research on Poverty. “What are Poverty Thresholds and Poverty Guidelines?” http://www.irp.wisc.edu/faqs/faq1.htm

[6] Office of the Assistant Secretary for Planning and Evaluation. U.S. Department of Health & Human Services. “Frequently Asked Questions Related to the Poverty Guidelines and Poverty.” Form Approved OMB# 0990-0379 Exp. Date 8/31/2017. http://aspe.hhs.gov/frequently-asked-questions-related-poverty-guidelines-and-poverty

[7] HealthCare.gov. “How to Count Income & Household Members: What to Include as Income.” https://www.healthcare.gov/income-and-household-information/income/

[8] Internal Revenue Service. “Questions and Answers on the Premium Tax Credit.” Last reviewed or updated Oct. 24, 2017. http://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/Questions-and-Answers-on-the-Premium-Tax-Credit

[9] The Henry J. Kaiser Family Foundation. “Explaining Health Care Reform: Questions About Health Insurance Subsidies.” Oct. 27, 2014. http://kff.org/health-reform/issue-brief/explaining-health-care-reform-questions-about-health/

[10] Office of the Assistant Secretary for Planning and Evaluation. U.S. Department of Health & Human Services. “Frequently Asked Questions Related to the Poverty Guidelines and Poverty.” Form Approved OMB# 0990-0379 Exp. Date 8/31/2017. http://aspe.hhs.gov/frequently-asked-questions-related-poverty-guidelines-and-poverty

[11] Ibid.

[12] Office of the Assistant Secretary for Planning and Evaluation. U.S. Department of Health & Human Services. “Frequently Asked Questions Related to the Poverty Guidelines and Poverty.” Form Approved OMB# 0990-0379 Exp. Date 8/31/2017. http://aspe.hhs.gov/frequently-asked-questions-related-poverty-guidelines-and-poverty