Self-Employed Income for Marketplace Plans: How to Estimate It

By Heather Sprague, Licensed Health Insurance Agent · Reviewed by Michael Sprague, Licensed Health Insurance Agent

To report self-employed income for marketplace coverage, estimate your net profit for the coming year, not your gross sales. That number sets your tax credit, and credits stop above 400% of the poverty level.

For one person, that limit is $63,840. Because there's no longer a cap on paying back extra credits, a careful estimate matters more than ever. Questions? Call 888-730-6031.

What Counts as Self-Employed Income for Marketplace Plans?

The marketplace wants your net self-employment income, which is your profit after business expenses. It's the same figure you report on Schedule C of your federal tax return, according to HealthCare.gov's self-employed income page.

Next, the marketplace adds your profit to other household income. Together, they form your modified adjusted gross income, or MAGI.

MAGI is the income figure the marketplace uses to set your savings. Our pillar guide to health insurance for self-employed people covers the plan side.

Source: HealthCare.gov: What to include as income.

Why Does Your Income Estimate Matter More Now?

Two rule changes raise the stakes for freelancers and business owners. First, the subsidy cliff is back. Second, the cap on paying back extra credits is gone.

The 400% Subsidy Cliff

Tax credits now end once household income passes 400% of the poverty level. Earning one dollar over the line can mean paying full price. Our guide to the ACA subsidy cliff explains how sharp that drop can be.

Poverty guidelines used for the coming plan year, from the healthinsurance.org subsidy guide.

No More Repayment Cap

Federal law removed the limit on paying back extra credits, starting with the current tax year. If your income beats your guess, you may owe the full difference, as the Kansas Health Institute explains.

On the other hand, guessing too high costs you savings during the year. So, the goal isn't a low number or a high number. Instead, aim for the most realistic one.

How to Estimate Self-Employed Income for Marketplace Coverage

A good self-employment income estimate starts with your most recent tax return. Then, adjust it for what you expect next. HealthCare.gov asks you to use past results, realistic plans and industry norms.

1. Pull your latest Schedule C: note your gross receipts, expenses and net profit.
2. Adjust for known changes: add signed contracts, and remove clients you've lost.
3. Subtract planned expenses: include new equipment, software or travel you expect.
4. Add other household income: include a spouse's wages and any investment income.
5. Subtract above-the-line deductions: see the next section for common ones.
6. Keep a ledger: track income and expenses monthly so you can update quickly.

A ledger can be a spreadsheet, accounting software report or even a notebook. In fact, HealthCare.gov accepts any accurate, detailed record if it asks you to prove income later. If your income swings a lot, read our tips on coverage based on your income.

Which Deductions Lower Your Marketplace Income?

Several tax deductions reduce MAGI, so they also lower the self-employed income for marketplace savings that you report. These matter most when you're close to the 400% line.

• Business expenses: they reduce net profit before anything else.
• Part of self-employment tax: the IRS lets you deduct the employer-equivalent portion when figuring adjusted gross income.
• Self-employed health insurance deduction: premiums for you and your family may be deductible on Form 7206.
• Retirement contributions: deductible IRA and similar contributions lower MAGI.
• HSA deposits: contributions to a health savings account also reduce MAGI. Bronze plans now work with HSAs; compare metal levels to see the trade-offs.

The health insurance deduction interacts with your tax credit, so the IRS uses a special calculation in Publication 974. For more detail, see our guide to health deductions for the self-employed.

An Example Near the Cliff

Here is a simple illustration for one person. We rounded the numbers, and a tax professional would figure the exact amounts.

Illustration only. The self-employment tax rate is 15.3%, per the IRS self-employment tax page. You figure the deductible share on Schedule SE.

In this case, profit alone looks like it's over the line. That's a common trap when people report self-employed income for marketplace plans. After deductions, however, this person may still qualify for a tax credit.

What If Your Business Income Changes Mid-Year?

Update your marketplace income estimate as soon as you expect a different yearly total. That way, your monthly credit adjusts before the gap grows.

HealthCare.gov says to update your estimate whenever your business circumstances change. For example, a big new client or a slow quarter are both good reasons to report.

Also, keep records handy. If the marketplace can't match your income to tax data, it may ask for proof. Upload your ledger or recent invoices before the deadline in the notice.

If your income falls below 100% of the poverty level, savings may change too. Our list of plans for people who don't get subsidies may help if you end up over the cliff.

Self-Employed Income for Marketplace FAQs

Can I just copy my latest tax return?

It's a starting point, not the final answer. The marketplace wants your expected income for the year you'll have coverage. If business is growing or slowing, adjust your prior profit to match.

Keep notes on how you built the number. That record helps if the marketplace asks you to explain it later.

What if my business shows a loss?

You report a business loss as negative net income. It can lower your household MAGI if other income exists.

However, very low income can affect eligibility. Below 100% of the poverty level, the marketplace may refer you to Medicaid. In states without expansion, you may get no subsidy at all.

Can a 1099 worker with a W-2 spouse still get a credit?

Yes, if total household MAGI stays at or under 400% of the poverty level. That's how 1099 income for ACA savings works for couples too. Add both incomes together, then subtract eligible deductions.

A spouse's job-based coverage offer can also affect eligibility. Ask an agent to check before you enroll. Our health insurance FAQ library covers more household questions.

Next Steps for Reporting Self-Employed Income for Marketplace Plans

Getting your self-employed income for marketplace savings right protects you twice: now and at tax time. First, start with net profit. Next, subtract eligible deductions, and then update your application when business changes.

Want help comparing plans? Call a licensed Vivna agent at 888-730-6031, Monday through Friday, 9 a.m. to 6 p.m. Eastern. You can also browse our individual health insurance plans.

Gig drivers and delivery workers can also read our guide to health coverage for gig work. Because tax rules are complex, talk to a tax professional about your situation.

Sources

1. HealthCare.gov: Reporting self-employment income
2. HealthCare.gov: What to include as income
3. healthinsurance.org: Will you receive an ACA premium subsidy?
4. Kansas Health Institute: What's changing on the ACA marketplace (H.R. 1)
5. IRS: Self-employment tax
6. IRS: Instructions for Form 7206

Related Guides

• Self-employed health insurance guide
• Freelancer health insurance options
• The ACA subsidy cliff explained
• How health insurance subsidies work

Vivna Insurance is a licensed independent agency, not a government website. Our help is free; we are paid by the insurance companies we work with. This article is general information, not tax advice; plan availability, rates and savings vary by county and income.