What is the 'Federal Poverty Level - FPL'

The Federal Poverty Level (FPL), or the "poverty line" is an economic measure that is used to decide whether the income level of an individual or family qualifies them for certain federal benefits and programs. The FPL is the set minimum amount of income that a family needs for food, clothing, transportation, shelter, and other necessities.

Also known as Federal Poverty Guidelines.

BREAKING DOWN 'Federal Poverty Level - FPL'

Each year, the US Census Bureau issues a public report on the level of poverty in the country. The report provides an estimate of the number of people that are poor; the percentage of people living below the poverty level; the poverty distribution by age, sex, ethnicity, location, etc.; and the level of income inequality. The Department of Health and Human Services (HHS) uses this report to set a poverty guideline on who should be eligible for certain federal programs.

The Federal Poverty Level (FPL) is typically issued annually in January by the HHS which uses household income and size to determine the poverty level. The information on the annual report shows the total cost needed by the average person per year to cover basic necessities like food, utilities, and accommodation. This number is adjusted annually for inflation.

The FPL is used to determine who would qualify for certain federal subsidies and aid such as Medicaid, Food Stamps, Family and Planning Services, the Children’s Health Insurance Program (CHIP), and the National School Lunch Program. The FPL varies according to the size of the family and their geographical location within the country. For example, Alaska and Hawaii have higher poverty levels since the cost of living in these regions is higher. In terms of family size, $4,180 is added to the poverty level for each additional family member ($5230 for Alaska and $4,810 for Hawaii). If the FPL for a family of two is $16,240, a family of three would therefore have a poverty level set at $16,240 + $4,180 = $20,420 in any of the states excluding Hawaii and Alaska. The table below shows the 2017 federal poverty guidelines for household sizes by region.

Table with federal poverty guidelines for 2017

How a family’s income compares to the FPL determines if they are eligible for any plans. When determining an individual's or a family's eligibility for receiving benefits, some government agencies compare before-tax income to the poverty guidelines, while others compare after-tax income. Some federal agencies and programs use some percentage multiple of the FPL to define income limits and to set eligibility criteria for households. For example, an income of less than 138% of the FPL will qualify an individual for Medicaid or CHIP. This means that an individual in a one-household setup in, say, Texas will need to earn below 138% x $12,060 = $16,642.80 to be eligible for Medicaid.

The Emergency Shelter Grant (ESG), Utility Assistance, and United Way Rent require a household to earn income of less than 150% of FPL. To be eligible for premium tax credits on Health Insurance Marketplace plans which would help reduce the monthly payments for a health plan, the criteria is in the range of 100 to 400% of FPL.

To calculate percentage of poverty level, divide income by the poverty guideline and multiply by 100. A family of five in New Jersey with annual income of $80,000 has a poverty level that is ($80,000/$28,780) x 100 = 278% of the federal poverty guidelines, and will likely not qualify for Utility Assistance or Medicaid, but may be eligible for an advanced premium tax credit subsidy.

Note that poverty level is different from poverty threshold. The poverty threshold is another federal poverty measure that actually defines what poverty is and provides statistics on the number of Americans living in poverty. The data is created by the US Census Bureau which uses pre-tax income as a yardstick to measure poverty. The statistical report on poverty threshold is used by the HHS to determine the federal poverty level (FPL).

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