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How do I estimate income if it varies from year to year?

Advice for the self-employed

Published: October 22, 2013 03:30 PM

Q. I’m self-employed but my income varies wildly. I usually won’t know until midyear whether it’s going to be $20,000 or $100,000 or somewhere in between. What income should I put down when shopping on the health insurance marketplace for my family of four? If it’s too low, will I have to pay the subsidy back? What if I take Medicaid and end up making too much to qualify for it?

A. This question comes in a lot from self-employed people. So many, in fact, that the Kaiser Family Foundation has extensive information about it on this useful page of FAQs. Here’s a short version of the information.

When you apply for coverage on your state’s Health Insurance Marketplace, you’ll be asked what income you expect in 2014. Give your best guess. The marketplace will electronically pull your Social Security and IRS records to compare, and if there’s a big discrepancy, will ask you for documentation to support your estimate.

Say you estimate your 2014 income is going to be $50,000, which would qualify you for a premium tax credit based on your family size. If after a few months you’re running ahead of or behind that pace, you should go back to your marketplace and revise your income projection. The marketplace will adjust your subsidy accordingly. You can do this as often as you need to.

Health reform countdown: We are doing an article a day on the new health care law until Jan. 1, 2014, when it takes full effect. (Read the previous posts in the series.) To get health insurance advice tailored to your situation, use our Health Law Helper.

In addition, if you have a bad stretch with hardly anything coming in, you can claim Medicaid benefits for that period. “Medicaid isn’t based on future income, it’s based on your current income month to month,” said Karen Pollitz, a health insurance expert at Kaiser. If your income pops back up, you can exit Medicaid and get back onto a marketplace plan. And no matter what your income ends up being at the end of the year, you won’t have to repay your Medicaid benefits.

If it turns out that you do pretty well in 2014, the main thing to watch out for is crossing the threshold beyond which you’re not eligible for a tax credit, which is about $94,000 for a family of four. If your income ends up higher than that, you’ll have to pay back all the tax credits you received. If you stay below that number, you’ll only have to pay back up to a certain limit, ranging from $600 if your income is below about $47,000, up to $2,500 if your income is just under that $94,000 level.

If on the other hand your income ends up below your estimate, when you file your 2014 return you will receive extra payments to make up the difference between the subsidy you claimed during the year and what you actually were entitled to based on your final income.

Got a question for our health insurance expert? Ask it here. It helps if you include the state you live in.

—Nancy Metcalf

   

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