ACAACAIndexSubsidy rules, calculated
Household income

Do pre-tax 401(k) contributions lower ACA MAGI?

See why 2026 pre-tax workplace deferrals can reduce ACA household income while designated Roth contributions do not.

Ruling
Pre-tax elective deferrals generally reduce federal taxable wages and ACA MAGI because they are excluded from Form W-2 box 1. Designated Roth 401(k) contributions remain in taxable wages and do not produce that reduction.

Follow federal taxable wages

The Marketplace tells wage earners to use federal taxable wages or subtract eligible payroll deductions, including retirement-plan amounts, from gross pay. IRS guidance excludes ordinary pre-tax elective deferrals from income-tax wages while including designated Roth contributions. Because ACA MAGI starts with AGI, the distinction flows into the household-income calculation.

Respect payroll and plan limits

A worker cannot create a retroactive deferral after compensation has already been paid. Use the employer plan's election process and the 2026 federal contribution limit, then verify year-to-date payroll records. Employer matches do not reduce the employee's current taxable wages, and an excess deferral may require corrective tax treatment rather than a permanent MAGI reduction.

Payroll example and common errors

A worker directs December compensation to the plan through a valid pre-tax election, so the amount is excluded from box 1 wages and generally from ACA MAGI. A designated Roth election for the same compensation remains in box 1. Subtracting both choices, relying on take-home pay, or separately deducting a pre-tax amount already excluded from wages understates household income.

Trace the election through taxable payroll

Confirm that the workplace plan and payroll system classify the election as pre-tax rather than designated Roth. Forecast federal taxable wages after the election, subject to the annual plan limit, and avoid a second deduction on the Marketplace application. Reconcile the projection to Form W-2 box 1 after year-end.

Use the final W-2 rather than subtracting box 12 from box 1; ordinary pre-tax deferrals should already be excluded from federal taxable wages.

Payroll deferral proof

  • Review the payroll election's effective pay period.
  • Separate pre-tax and designated Roth year-to-date amounts.
  • Update projected Marketplace income when taxable wages change materially.

Continue with

ACA MAGI: the income number the Marketplace usesDo traditional IRA contributions lower ACA MAGI?When and how to report Marketplace income changes

Authorities used for this guide

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