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Your Guide to the Federal Poverty Level

Your Guide to the Federal Poverty Level

Almost any article about the Affordable Care Act that mentions tax credits and subsidies mentions the federal poverty level. For example, in states that expanded their Medicaid programs as of January 2014, individuals under 65 years of age with income below 133 percent of the federal poverty level are eligible for Medicaid.

For many, such statements do not provide enough information. Here are some 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.

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.

Click here to view the 2014 federal poverty guidelines. Past HHS guidelines are available here.

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. These include but are not limited to Medicare, the Children’s Health Insurance Program, Migrant Health Centers, Community Health Centers, Family and Planning Services.

These guidelines are published and become effective each January. They are calculated based on the previous calendar year and updated to reflect price levels in the year to come, according to an HHS FAQ differences on poverty guidelines and poverty.

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, which serve an administrative function. Poverty thresholds are issued by the U.S. Census Bureau for statistical purposes.

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.

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. The same poverty thresholds apply to 50 states and the District of Columbia.

Learn more about these differences at the University of Wisconsin—Madison’s Institute for Research on Poverty.

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.

I read that starting in 2014 tax credits will be available to help make health insurance affordable families with income between 100 and 400 percent of the poverty line. What does this mean?

First of all, premium tax credits will only apply to only to those who are not eligible for other affordable coverage and purchase health insurance through the Health Insurance Marketplace.

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. Again, you can click here for the 2014 poverty guidelines.

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

    • Example 1 – You are a single individual with an income of $20,000. The 2014 poverty guideline for a one-person household is $11,670.
    •               $20,000 ÷ $11,670 = 1.71

    You are at 171 percent of the federal poverty guidelines and likely qualify for the tax credit.
    • Example 2 – You are married with 3 kids, and your household’s annual income is $150,000. The 2014 poverty guideline for a five-person family or household is $27,910.
    •             $150,000 ÷ $27,910 = 5.37

    You are at 537 percent of the federal poverty guidelines and are unlikely to qualify for the tax credit.
    • Example 3 – Yours is a 10-person household with an annual income of $75,000. For the 2014 poverty guidelines, you add $4,020 per additional person after the eight-person guideline of $40,090.
    •             Step 1: Determine the federal poverty guideline for your household size.
                  Step 2: Determine your percentage of poverty.
                  $75,000 ÷ $48,330 = 1.55

      Your household is at 155 percent of the federal poverty guidelines. You would  qualify for the tax credit.

    Use’s Health Care Reform Calculator to estimate your annual health insurance premium and tax credit when you purchase health insurance from a state-based or federally facilitated health insurance exchange.

    Remember: Tax credit eligibility in 2015 will be determined by 2015 poverty guidelines.