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An Obamacare guide for freelancers and the self-employed
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An Obamacare guide for freelancers and the self-employed

heathy artists

Lately we’ve been attending a bunch of workshops geared towards helping various communities navigate the Affordable Care Act. It’s mostly for the Q&A’s– we know Obamacare as well as anyone, but it’s always helpful to hear what parts of the law are confusing to people who are new to the whole thing. At a recent ACA workshop for working artists we heard one question that was particularly hard to answer:

  • To get the subsidy to pay for insurance, you have to estimate your annual income. But what do you do if you have no idea what your annual income will be?

That’s a concern for anyone who freelances or is self-employed, and it makes navigating the new system particularly difficult for these folk. In this post, we explain why and offer seven tips that should make the process a little easier.

[UPDATE 11/9/15: The poverty level income figures we mention below have been updated for 2016.]

Why Obamacare coverage could be great for freelancers

Currently, about 17 million Americans work as either a freelancer, contractor, or owner of a micro-business. If you include temps and part-timers, it’s over 40 million people, or about a third of the U.S. workforce— and according to the most recent survey we could find (from 2006), almost 40% of them lack health insurance.

Anecdotes from freelancers show how hard it could be to get decent coverage before Obamacare:

On NPR, one freelance writer and editor described finding a plan that cost $600 per month: “It covered nothing. It was a huge deductible and literally, the first time you filed a claim you would be dropped.”

Writing in Salon, a freelancer with type-1 diabetes detailed an exchange with a health insurance representative: “’So are you trying to tell me that even if I were willing to give you a million dollars a month, you would still not let me join your health plan?’ I asked one representative. She said yes and hung up.”

Then there are the people who would rather freelance or start their own business, but are afraid to leave their current employer because it would mean losing their health insurance– a phenomenon known as “job lock.” According to a 2006 Watson Wyatt study, two thirds of top-performing employees said healthcare benefits were an important reason to stay with a company.

So, for current and future self-employed workers, Obamacare is likely a great deal– they’ll finally be able to find decent insurance without a traditional employer and often get help paying for it. But first, they have to get through the Obamacare application process.

Why applying for Obamacare coverage is less great

To shop for plans, first you have to estimate your annual income, and getting that right is important: if you overestimate, your subsidy might be too small, but if you underestimate, you might owe the IRS money when tax time comes around. (Or even worse, if you live in a state that doesn’t expand Medicaid and your underestimation puts your income below the poverty line, you won’t be eligible for any help paying for insurance.)

Yet, for many self-employed individuals, estimating annual income is all but impossible– it can vary wildly from month-to-month, year-to-year, depending on their luck landing assignments, contracts, sales, etc. One woman in the audience during an Obamacare for artists workshop I attended put it this way:

“The people who write these laws have no idea how things work in the real world.”

7 tips for the self-employed when shopping for plans

Even though navigating Obamacare can be a huuuuge pain for freelancers, the potential benefits are too good to pass up. Here are some tips that will help if you’re self-employed and applying for insurance on the Obamacare website.

1. Make sure you’re actually a freelancer/self-employed and not a small business

This might seem obvious, but just in case: if you have any employees (people you send a W2 at the end of the year) you’re considered an “employer,” and can buy insurance on the small business marketplace. If you just hire independent contractors for some work, then you’re still considered self-employed and you’ll only buy coverage on the individual marketplace. Healthcare.gov has more info here.

2. You won’t get in trouble if your income estimate is wrong

The government will try to verify your income when you apply for Obamacare coverage, but it’s mainly geared towards catching obvious lies or mistakes– for example a person who has a full-time job and says they’re unemployed. Here’s how it works:

In the 36 states using the federal exchange, the estimates of all applications are then checked against Internal Revenue Service and Social Security records, looking for large discrepancies. If the amount supplied can’t be confirmed through federal records, it will be checked against wage information employers send to Equifax, a credit reporting agency. After a rule change this summer, states that have built their own exchanges don’t have to check every applicant for 2014, verifying only a sample of participants, said Timothy Jost, professor of law at Washington and Lee University.

If the estimate still can’t be verified, the exchange will request additional documentation from the applicant.

If you’re a freelancer or independent contractor you can send them your most recent 1099’s or a self-employment ledger and the government should take your word that it’s accurate. Says Jost:

“Our tax system is largely an honor system. For most Americans, there’s no way you can verify in advance what your income will be in a year. All you can do is make your best guess.”

UPDATE: A bunch of people have been asking what a self-employment ledger is, since that’s one of the things the IRS says freelancers can provide to verify their income. For most states, there’s no official form– anything that clearly breaks down your income and expenses is a “self-employed ledger.”

For an example of a self-employment ledger that you can use as a template, one of the commenters mentioned that South Dakota has a good one here. Also, New York is one of the few states that includes a self-employment ledger form as part of its online Obamacare application– you can see a screenshot of that here. You don’t have to copy them exactly, but those should give you a good idea of what kind of info the IRS is asking you to provide in a self-employment ledger.

And for more on income verification, Consumers Union has a good guide here.

UPDATE 2: Another commenter has pointed out that you can use accounting software, like Quicken, to generate a ledger as well.

3. It’s probably better to estimate too high than too low, otherwise you could owe money later 

One reason the income verification isn’t more strict is that the IRS will reconcile your tax return with your Obamacare application at tax time. If you knowingly provided false information, you could face fines or even criminal charges, but if you simply guessed wrong you don’t have to worry. Also, if it turns out you were owed a bigger subsidy because you overestimated your income for the year, you’ll get that extra money in your tax refund.

The potential problem for freelancers is that if your income was higher than you expected, you’ll have to pay back the extra subsidy credit you got. There are some limits to how much you’ll owe the IRS if you guess wrong, which, like the subsidy itself, is on a sliding scale:

subsidy repayment limits

Those are still hefty tax bills, but it’s nice to know that you won’t go bankrupt if you get the estimate wrong. And if you really want to avoid owing money at tax time then you can either choose not to apply your entire subsidy to your monthly premium (again, you’ll get the leftover in your refund) or…

4. If your income changes, tell the insurance marketplace

A recent study in the journal Health Affairs found that the number of people owing repayments could be reduced up to 40%, and the median repayment reduced by 60%, if people simply report income changes to their Obamacare marketplace.

You can do this as often as you want, so if you land a bunch of new clients, or a big project ends, or you have a great month selling pirate guinea pig portraits on Etsy— log onto your state’s marketplace and let them know. (In reality this probably means every few months adding all your 1099’s and subtracting any deductions– more on those in a sec. We just wanted an excuse to use this picture:)

guinea pig captain

5. For those living in states that don’t expand Medicaid: If you overestimate your income, you don’t have to repay anything

True to the stereotype of the starving artist, many of the ones I’ve talked to have incomes hovering right around the federal poverty line (FPL- $11,770 for an individual). If you live in a state that doesn’t expand Medicaid and your income is below that line, you’re especially screwed– you’re not eligible for subsidies to buy private coverage, and unless you were eligible for Medicaid under the old rules, you can’t get that either.

But say you estimate that your income will be over the FPL and thus qualify a subsidy to pay for private insurance– if your actual income at the end of the year is lower than FPL, you don’t have to pay anything back. And in many cases the federal subsidy will be enough to cover the entire cost of private insurance on the marketplace.

Now to be clear, we’re not saying that you should lie to the federal government. But, if you live in a state that didn’t expand, and you’re not sure whether next year’s income will be above or below that line, you probably want to go with the higher estimate.

6. Keep in mind the exchange is asking for your Modified Adjusted Gross Income

The health marketplace isn’t asking for total income but something called Modified Adjusted Gross Income (MAGI): basically your Adjusted Gross Income (line 4 on 1040-EZ, line 21 on 1040A, or line 37 on 1040) plus a handful of other types of income that are explained here.

The Atlantic’s Garance Franke-Ruta explains why this distinction is especially important for self-employed workers:

The difference between gross income and adjusted gross income is not going to be huge for most people who are lower- to middle-class and get paid through W2s. But for people paid through 1099s and piecemeal work, adjusted gross income can be thousands of dollars lower than gross income, since it’s the figure that comes after all the Schedule C deductions (such as for home office, internet, business use of a phone, computer equipment, etc.).

She also notes that calculating MAGI is not easy:

If you’ve never lived in the world of piecework and Schedule C deductions, imagine saving all your expense receipts for an entire year and then having to do them before you can begin to calculate what your MAGI is. This is, in fact, exactly what has to happen. […]

In short, for the self-employed, applying for Obamacare subsidies can be as much fun as doing your taxes, because—depending on the state forms—it can actually involve doing part of your taxes.

Many freelancers and self-employed individuals find it’s easier to do their taxes quarterly anyways– if you do that, then just make sure to report it to the health marketplace too. If not, then when you’re estimating your annual income, keep in mind that the marketplaces are asking for something a little different from– and something that’s likely to be lower than– total gross income.

7. Take a close look at the “Silver” plans

Obamacare plans are ranked as bronze, silver, gold, or platinum, based on their out-of-pocket costs. Cheaper plans come with high out-of-pocket costs– a problem for everyone, but especially independent workers who might have long gaps with little or no income. However, if you make less than 250% of the poverty line ($29,425 for an individual), you’re eligible for reduced cost-sharing… but only on silver plans. For more info, check out our earlier post here.

The TL;DR conclusion

Here’s the main take-away: estimating annual income can be difficult if you’re self-employed, but it’s okay if you’re off. To avoid owing taxes later (1) estimate a little high (you’ll get the money back in your tax refund if you guess too high) and (2) if your income changes let your marketplace know.

{ 156 comments… add one }
  • Bill February 24, 2016, 9:51 pm

    I’m expecting 2016 income to be somewhat higher than 2015. Would it be enough if I send them my 2015 return along with first quarter estimated tax payment?

  • Rob Cullen February 25, 2016, 3:09 pm

    @Bill: Since the rules are sort of vague there’s always a chance that they’ll ask for additional info, but yeah a 2015 return and first quarter estimated tax payment should be fine.

  • Ethelyn March 13, 2016, 6:14 pm

    Thanks for providing this information!

  • Jim March 21, 2016, 9:43 am

    I am a W2 contract worker and I am just coming to the end of COBRA from another firm. If I can continue to find work for the remainder of 2016, my monthy Obama Care payment for me and my family will be around $1,046.00 with a $6,800.00 deductible for the AmBetter plan. However, what happens if I do not get another contract for the rest of the year? Will the market place make an adjustment in my monthly premium?
    Nothing left and Worried to death in Ohio, Jim.

  • Rob Cullen March 21, 2016, 1:08 pm

    @Jim: The marketplace won’t automatically adjust your monthly premium, but you can log-on to report a change in income yourself, if you don’t get another contract. If you get another contract later in the year you can report that other change in income too.

    If you don’t report these changes in income, it will still be reconciled on your 2016 taxes– if your income estimate was too high you’ll get money back, and you’ll owe money if it was too low. But if you’re worried about being able to afford the monthly premium, it’s better to report the change in income as soon as you find out about it.

  • Jim March 25, 2016, 1:00 pm

    Rob, Thanks for the quick response.

  • KB March 30, 2016, 5:50 pm

    There’s something that relates to #3 that all freelancers should be aware of. It’s really not best to overestimate your income, because if you do, and you don’t make 100% of the poverty level, you won’t get that money back at all.

    This is an unwelcome surprise to me this year. I was depending on one of my contracts to pay out in 2015 — it didn’t. As a result, my income in 2015 was very low (under poverty line). Too bad. I won’t get any premium assistance returned to me, and I paid out $4,200. Ironically, if I had earned poverty level or just UNDERestimated my income (and got credit through the year), I would have been fine and wouldn’t have had to pay anything back.

    This is a horrible loophole that all self-employeds should be aware of. What sucks is that you often don’t find this out until it’s too late (this link to the IRS site completely disregards this loophole, and makes it sound so easy-breezy with its “get it now or get it later!” nonsense). https://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/Questions-and-Answers-on-the-Premium-Tax-Credit

  • alan janssens April 5, 2016, 2:44 pm

    I estimated 15,000 for the last 3 years and had no problem until 2015.. I have a income of $800 dollars due to late year losses… self employed. I read I will NOT have to pay back the subsidy as I am so far below the poverty level,(no Medicare FL. and couldn’t qualify anyway) but am concerned for my continuing coverage on Obamacare…I have Social Security(retirement age 63) in 2016 and already locked in 15,000 dollars for 2016 so this can not happen again… will they deny me 2017?.. what is the real deal?

  • Rob Cullen April 5, 2016, 3:32 pm

    @alan: They might ask you to send something to verify your income if your estimate for 2016 is different from what you actually made in 2015. You could just send a copy of whatever document confirms you’re getting social security this year, which should be fine.

  • gwen April 6, 2016, 3:27 am

    Question about:
    “5. For those living in states that don’t expand Medicaid: If you overestimate your income, you don’t have to repay anything

    True to the stereotype of the starving artist, many of the ones I’ve talked to have incomes hovering right around the federal poverty line (FPL- $11,770 for an individual). If you live in a state that doesn’t expand Medicaid and your income is below that line, you’re especially screwed– you’re not eligible for subsidies to buy private coverage, and unless you were eligible for Medicaid under the old rules, you can’t get that either.

    But say you estimate that your income will be over the FPL and thus qualify a subsidy to pay for private insurance– if your actual income at the end of the year is lower than FPL, you don’t have to pay anything back. And in many cases the federal subsidy will be enough to cover the entire cost of private insurance on the marketplace.”

    I have a different situation- live in a state that DID expand Medicaid. I need to earn about $1400 a month to just pass the threshold for qualifying for Medicaid. My projected income on healthcare.gov was $1400 a month. Now, doing my taxes I see that my income averaged out to more like $1100 a month which means that I WOULD NOT HAVE QUALIFIED FOR HEALTHCARE.GOV INSURANCE WITH SUBSIDY and would have been instead forced to use medicaid in my state, if you look at the annual income.

    My question: what happens after I file my taxes indicating an income of about $1100/mo? Will I be forced to pay back the healthcare.gov policy expenses because I should have been on Medicaid instead? Will I be forced to go to the horrific Medicaid office now and show them all my earnings, expenses to prove to them I usually average around $1400 a month and don’t qualify for Medicaid (only a few slow summer months would I meet medicaid requirements…those slow months drag my average monthly income way down…unless they changed it, they determine medicaid eligiblity on a monthly income basis re-verifying your eligibility every 3 months by rechecking all your self-employment info.)

    Its a catch 22 because I hover very close to the cut off of where you are no longer eligible for healthcare.gov and are eligible for medicaid. On a month by month basis I would frequently no longer qualify for medicaid. I used the sure stable thing, the healthcare.gov coverage and now that my ANNUAL numbers (not month to month numbers) demonstrate I would have qualified for medicaid, how will they penalize me or deal with my future coverage? help!

  • gwen April 6, 2016, 3:50 am

    Well, to try and answer my own question I just submitted, to help others-here is what I found on irs site: https://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/Questions-and-Answers-on-the-Premium-Tax-Credit

    “26. I enrolled in a qualified health plan with advance payments of the premium tax credit (APTC) based on a Marketplace determination or assessment that I was ineligible for Medicaid or CHIP coverage. Subsequently, I was determined eligible for Medicaid and was enrolled for several months while I was enrolled in the qualified health plan. Am I treated as eligible for Medicaid and therefore ineligible for the premium tax credit for these months?

    Generally, no. If a Marketplace makes a determination or assessment that an individual is ineligible for Medicaid or CHIP and eligible for APTC when the individual enrolls in a qualified health plan, the individual is treated as not eligible for Medicaid or CHIP for purposes of the premium tax credit for the duration of the period of coverage under the qualified health plan (generally, the rest of the plan year). Accordingly, if you were enrolled in both Medicaid coverage and in a qualified health plan for which advance credit payments were made for one or more months of the year following a Marketplace determination or assessment that you were ineligible for Medicaid, you can claim the premium tax credit for these months, if you are otherwise eligible. The Marketplace may periodically check state Medicaid data to identify consumers who may be dual-enrolled, and direct them to return to the Marketplace to discontinue their APTC. If you believe that you may currently be enrolled in both Medicaid and a qualified health plan with advance credit payments, you should contact the Marketplace immediately.”

    The dual enrollment issues don’t apply to my case, but what does is that statement that healthcare.gov will treat you as ineligible for medicaid for the duration of the coverage year if they deem you ineligible at your time of application. That must mean that your eligibility for the advance payments of the premium tax credit (APTC) is also regarded as eligible through the year even if you end up dipping down a bit in income and becoming eligible for medicaid. So it sounds like I have nothing to be worried about, yes?

  • Rob Cullen April 6, 2016, 5:54 pm

    @gwen: Even if your state did expand Medicaid, number 5 still applies– if you find out that you overestimated your income you don’t have to pay back anything.

    That said, if you estimated that your income will be higher this upcoming year than it was in 2015, they might ask you to submit something to verify it. If that happens you shouldn’t have to go to the Medicaid office, but you would have to send it to your state’s Marketplace, either electronically or through the mail. And if you’re freelance or self-employed, they should accept a simple ledger like the one I mention in the post.

    But even though the Marketplace sometimes asks about monthly income, what they really care about is annual income– so yeah, even if your income dips down a bit for a few months it doesn’t matter as long as your annual income is above the subsidy cutoff.

  • gwen April 7, 2016, 1:08 am

    from Rob’s response: “But even though the Marketplace sometimes asks about monthly income, what they really care about is annual income– so yeah, even if your income dips down a bit for a few months it doesn’t matter as long as your annual income is above the subsidy cutoff.”

    And for the sake of clarity, in general subsidy cutoff = less than 100% of Federal Poverty Level (FPL), which for 2015 was $11,700 for a single person like me. But this gets complicated depending on if you are at the beginning of the year applying or at the end of the year now filing taxes.

    So in my state (AZ) with expanded Medicaid coverage, you are most likely eligible for Medicaid coverage if your income is at or below 138% of federal poverty level.

    It has been stated in multiple official sources you are likely eligible for Healthcare Marketplace insurance subsidy (premium tax credit-PTC/APTC) if your income ranges from 100-400% of federal poverty level.

    It does seem an exception to that last sentence is in states where Medicaid was expanded and you predict an income of 138% federal poverty level or lower when you apply at the beginning of the year. In that case, the system will likely deny you subsidy and direct you to apply for Medicaid.

    From https://www.healthinsurance.org/obamacare/will-you-receive-an-obamacare-premium-subsidy/ :

    “In states that have expanded Medicaid under the Affordable Care Act, Medicaid is available to enrollees with incomes up to 138 percent of the poverty level, and subsidies are not available below that threshold.”

    But from the above posted IRS reference I now know that in general they should honor the eligibility status they quoted you at the beginning of the year when you applied.

    So I applied with predicted income at 143% FPL and was able to enroll in subsidized marketplace insurance which was my desire. Now at tax time my true annual income turned out to be 117% FPL. It sounds like I (and the many others in my situation) are still considered eligible for subsidy RETROSPECTIVELY and there should be no issue. If my tax time true annual income turned out to be less than 100% FPL I’m not sure what would happen then (maybe Rob knows).

    But being where I am, above 100% FPL and medicaid eligible IN RETROSPECT leaves me okay-still qualifying for subsidy and having the IRS/healthcare.gov honor the eligibility terms dictated at time of application.

    In coming years they may regulate this more tightly, but to the best of my understanding this is how it currently works. What you state about possibly having to demonstrate ledger proof as to why I expect to be above 138% FPL (medicaid cutoff) for 2016 or 2017 makes perfect sense.

    Thank you so much Rob for having this post and taking the time to respond to people’s questions during tax time-very helpful!

  • Leslie April 12, 2016, 12:28 pm

    In researching this issue I came across an article posted on Linked in in 2015 (https://www.linkedin.com/pulse/self-employed-tips-finding-affordable-healthcare-coverage-kelley) which contains chunks of this same text (from the 7 tips), word-for-word.
    Did that writer take your text, or did those tips come from another source? I guess we live in a cut-and-paste era …

  • Rob Cullen April 12, 2016, 12:48 pm

    @Leslie: Thanks for the heads up. I wrote the original article based on research and interviews I’d done– so I guess she just cut and pasted it word for word (and sort of sloppily too– for example, my text refers to a graph that she didn’t include). Anyways, I’m glad she found the info useful enough to share, but it’d be nice if she cited me…

  • Rob Cullen April 12, 2016, 1:16 pm

    @gwen: “If my tax time true annual income turned out to be less than 100% FPL I’m not sure what would happen then (maybe Rob knows).”

    Even if your income ended up below 100% FPL you still wouldn’t have to pay back the subsidy.

    There is one way that you could not get your subsidy if your income is below 100% FPL though. Most people get the subsidy applied to their monthly premiums, but on the Marketplace it gives you the option not to do that, and instead collect the subsidy credit on your taxes at the end of the year. If you go that route and your income ends up below 100% FPL for the year, you’d be ineligible and wouldn’t get the credit on your taxes. But as long as the subsidy is being applied to your monthly premium (which again, is what most people– especially those with low incomes do), the IRS won’t make you pay it back if you find out later that your income was below the cutoff.

  • Melissa April 14, 2016, 5:33 pm

    My husband and I are both self employed on commissions, together our adjusted gross income was $62000 at year end, however, we were at poverty level on income most of the year until October and were on paid medical (medicaid) all year long. We signed up to pay our own insurance when they let us. We were told to switch over in December, how do I pay back the medicaid for the year when we ended up making more money. Last year, we were at poverty level all year long. I don’t want to get slapped huge penalties or fines, or worse! Help!!!

  • CWC April 15, 2016, 12:11 am

    Hi when completing my 2014 taxes we owed Obama care $6000 which we paid promptly. While completing my 2015 taxes Obama care owes us $5700. My question is I immediately paid the $6000 payment owed him. Hence how do I collect the $5700 that Obama care owes me it appears that’s not an instant event. I sent my taxes in already. While talking to California covered I was informed that our income dropped substantially because of being on full retirement thus we paid too much for the entire year of 2015 and overpaid three months in the year 2016. Thus my question is how do we give a refund from Obama care? Thanks for your column thanks for your help. CWC

  • P Hutchinson April 18, 2016, 3:48 pm

    Hi Rob,

    I understand that you do not have to pay back the subsidy for 2015 if your self-employment income ends up being below the 100% FPL. But would this affect your subsidy for the following year? This is in Texas.


  • Rob Cullen April 18, 2016, 4:18 pm

    @P: It depends– if your income estimate is different from your actual income from previous year, they might ask for income verification info again. But as long as you can show why your income will probably be higher in the current year (and they should accept a self-employment ledger for this) you’d be fine.

  • P Hutchinson April 18, 2016, 4:39 pm


  • Rob Cullen April 18, 2016, 5:15 pm

    @CWC: If you overpaid for your health insurance, you’d get the extra money back as a refund when you file your taxes. Form 8962 is the form you file along with your taxes to reconcile your health insurance subsidies. (If you filed your taxes online, check your return– if the software asked you questions about health insurance, it probably filled out the 8962 for you.) If you did file an 8962 and there are math errors and that’s why you didn’t get the refund, then the IRS *should* correct those for you. If you didn’t fill out the 8962, then either (1) the IRS will send you a request to file one, or (2) you’ll have to a file an amended return that includes the 8962 to get the refund. I would talk to a tax professional to find out for sure though.

  • Jen April 26, 2016, 10:42 am

    Hi Rob,
    You seem to know a lot about this and I’m having a tough time navigating the Marketplace’s requests for my “proof of income.” The whole reason I lost my health insurance and needed coverage through the Marketplace was because I resigned from my job. When I filled out my application, they asked me to estimate by income based on what I thought I might make if/when job prospects came along. Well, now they’re requesting proof of that income and I don’t have any because I don’t have a new job just yet. All I have by way of proof is my last pay stub from the school district I was working for. I’m not making that rate of pay anymore but that was already reported to the IRS. I sent that in with a letter explaining the situation and just received a “FINAL NOTICE” to send my proof in. Guess that doesn’t suffice. If I go on to my application and adjust my projected income based on what’s been reported, that would make me eligible for Medicaid, but I want to keep the plan I have. I’m not sure where to go from here. If you have any advice please let me know.

  • Rob Cullen April 26, 2016, 12:56 pm

    @Jen: Unless you have a job offer, I don’t think they’ll accept an estimate of what you might make when another job comes along as proof of income. If they don’t, you could continue on your current plan without subsidies, although that could make it much more expensive (depending on what income you reported originally). If you can’t afford that, I would just enroll in Medicaid, and then when you do get another job, which counts as a “qualifying life event,” you can sign up for you old plan during a “special enrollment period.” In other words, whenever you get a new job, you can report the change in income on the Marketplace and re-sign up for your old plan immediately, without waiting until the next open enrollment period in the fall.

    Also, I’ve noticed a number of people in the comments here are worried about having to enroll in Medicaid instead of private insurance. It depends somewhat on where you live, but Medicaid is almost always as good or better coverage (for far less money) than any of the plans on the Marketplace.

    Consumer Reports has a really good, quick article on how Medicaid compares to private insurance here: http://www.consumerreports.org/cro/news/2013/12/is-medicaid-good-insurance/index.htm

  • Rob Cullen May 5, 2016, 5:20 pm

    @Melissa: You don’t have to pay anything back for the Medicaid coverage. For private insurance it would be different– if you receive subsidies and your income jumps substantially, that would be reconciled on your taxes at the end of the year and you’d owe the IRS money, but for Medicaid there’s no charge or fine.

  • Raymon May 12, 2016, 2:24 pm

    I am an Independent Contractor. I have not worked or had any income in 2016. Is a Self-employment ledger (filled with $0.00 so far this year) all I need to send to Justify the Life Change of significantly lower income if file on my 2016 application. They are saying I need to prove income by June 22, 2016. I had no discounts on the 7 months I was insured last year and payed full premium through 12/2015.

  • Rob Cullen May 12, 2016, 3:40 pm

    @Raymon: Yep, they should accept a self-employment ledger as proof, even if it shows no income, although you might want to include some kind of explanation along with it.

  • Emily May 31, 2016, 4:35 pm

    I have just left a job and will be self-employed working from home. How should I submit a self-employment ledger if I literally just left a job and have not made any income on my own yet?
    On my Marketplace Application I projected what I *think* I will make this year, including my previous job + self-employment + part-time work. I can fill in expenses, but my self-employment income would be zero which would put me below what I originally projected for the year, and below FPL. And I don’t qualify for Medicaid in my state.

    In short: I’m not sure how to prove my estimated income from self-employment, my income so far for the year puts me below FPL, and I don’t qualify for Medicaid in Georgia. How do I show I will be above FPL to qualify for premium tax credit? Or do I need to start a new application..
    Thank you!

  • jen June 1, 2016, 1:13 pm

    We just got kicked off Medicaid in PA, which did expand Medicaid because our income from last year was too high. My husband is self-employed so they use the most recent tax return, not monthly amounts. Our estimate for 2016 is an amount where we would qualify for Medicaid, not Obamacare. But if I enter that information on healthcare.gov I think they won’t give me tax credits and direct me to Medicaid, but then Medicaid would use last year’s tax return and deny me coverage. What do I do? My idea is to overestimate my income to just above the 138% guideline so I qualify for Obamacare since I can’t currently get Medicaid. Is this the best thing to do?

  • Rob Cullen June 1, 2016, 2:17 pm

    @jen: In Pennsylvania, if your reported income is different from what the state’s data sources say (I guess in this case the IRS), you should have an opportunity to provide a reasonable explanation and additional documentation for them to see if you’re really eligible or not:


    I don’t know what kind of documentation Pennsylvania’s Medicaid agency accepts, but if your current monthly income puts you below the Medicaid threshold, I’d talk to them first. If you definitely can’t get Medicaid, then yeah, it might make sense to go with a higher estimate to qualify for private coverage (as long as it’s reasonable– I wouldn’t make anything up).

    Either way– whether you get Medicaid or Obamacare coverage– whenever it starts to look like your actual income for the year will be different from your estimate, you should report that change on healthcare.gov.

  • Rob Cullen June 1, 2016, 2:32 pm

    @Emily: If it asks for additional documentation and you don’t have any income to report on a self-employment ledger yet, you could try sending an estimate for projected income, with an explanation of how you arrived at those figures “based on your past experience, realistic expectations, industry standards, and other information.” (The part in quotes is from healthcare.gov’s guide to reporting self-employment income, which is a helpful resource that wasn’t available when I originally wrote this article: https://www.healthcare.gov/self-employed/income/).

  • Paul June 21, 2016, 11:50 pm


    When I left my job last year and went out on my own I estimated my income for the last five months of the year, which resulted in my two children being eligible for Florida Healthy kids. My son recently turned 19 so he was no longer eligible for Florida Healthy kids. I applied under a life changing event and they are now asking for my income. My income is up for a project I’ve been working on since January but it ends in July and at the moment I do not have additional work. The only thing I can give them is a ledger for income and expenses through the first quarter this year. I will not receive a 1099 from the client until year end. Since my income is higher at the moment than it was last year I’m quite certain they will change the subsidy I receive. If I do not get additional work in July and August do I have to report to them my estimated income is zero for those months? This would put me below the FPL for that time frame since there would be no other income and I suspect would change my plan eligibility.

  • Rob Cullen June 22, 2016, 11:12 am

    @Paul: The subsidies are really based on annual income (everything gets reconciled when you file your taxes for 2016)– if they ask for your monthly income you can (1) estimate what you think you’ll make this year and divide by 12; or (2) tell them your current monthly income and report another life changing event when that changes. It sounds like the first option might be best for you, since zero income would put you below the FPL and Florida hasn’t expanded Medicaid.

    There might be a snag if they ask for income verification, since the amount on your ledger would be higher than what you’d be reporting, but if you include projected income or even just an explanation saying that the project ended and that’s why your income is lower, they *should* accept that.

  • rose November 30, 2016, 3:07 pm

    Hi Rob~
    This year, ACA is asking me to verify my income. I am an S-Corp. I receive a lot of deductions due to the nature of my business. If my income on my 1040 is -14,000, should I also send a copy of my 1120S? Or should I create a self employment ledger or pay stubs instead? I appreciate your input.

  • Rob Cullen November 30, 2016, 6:08 pm

    @rose: In general, sending as much info as you can is probably the best strategy. So if you’re current income is roughly the same as your income from last year, then sending a 1040 with your 1120S would be fine. If your income for 2016 is different, then you may want to go also include a self-employment ledger/pay stubs that are more recent, so you can show the change.

  • Shawn Wiederhoeft December 8, 2016, 1:31 pm

    Hey Rob, thanks for writing this article.

    I’m wondering how to approach my situation. I am a freelancer who has had continuous work in 2016 but currently nothing lined up in 2017. Being new to freelancing and not sure how long I will be without a contract how should I estimate my income? And how would I prove that I don’t have income prospects currently? Do I estimate 0$ then change it once I get a contract? Oof this is confusing. I live in WI if that helps.

    Thanks for any extra insight!

  • Rob Cullen December 15, 2016, 3:14 pm

    @Shawn: So you have a couple of options… the income they really care about is what you expect to make total in 2017, so if you have a plan you like that you want to keep you can make your estimate based on what you made in 2016, and adjust using your best guesses. But if you have no income coming in right now, you should be able to estimate $0 for your current monthly income, and change it once you get a contract. If you have something showing that your 2016 contracts ended, that could help you prove you don’t have income (even a self-employment ledger might work), along with a letter explaining your situation. Like I was telling other people, the rules for what they’ll accept for income verification aren’t spelled out super well, so the more info you can send them the better.

    With no income, you’d be eligible for Medicaid, which works a little different in Wisconsin than other states. Wisconsin didn’t expand Medicaid under the ACA, but it does still cover all adults with incomes below the federal poverty line. But if your income goes above 100% of the FPL, the WI Medicaid rules are a little weird– you can read more about it here if you’re interested: http://kff.org/medicaid/fact-sheet/wisconsins-badgercare-program-and-the-aca/

  • James December 18, 2016, 6:15 pm

    How can the healthcare marketplace verify what one is filling out on the self employment ledger is accurate or even true?

  • Rob Cullen December 20, 2016, 1:28 pm

    @James: In many cases, they can’t verify it and simply have to take your word that it’s accurate, but there are a couple deterrents to keep people from lying: (1) everything gets reconciled on your taxes at the end of the year, so if you understate your income, you have to pay back the extra subsidies you get anyways; and (2) possible fines/criminal penalties for intentionally lying about your income. Those don’t apply if you simply estimate wrong– they can’t penalize you for making a mistake or making your best guess– but if they find out you didn’t report a major source of income on your self employment ledger so that you’d qualify for Medicaid or something, you could be in trouble.

  • Dave December 27, 2016, 4:58 pm

    In 2016 I lost my job and healthcare benefits, I earned income from the old job until the end of March when I was let go, then obviously lost the income and health benefits at the same time. I found another job, paying way less but took it (hey I’m 63, glad to be working at all), and applied for ObamaCare and based on my earning estimates for my new position received a decent advanced Tax credit which reduced my monthly premiums substantially. Now I’m wondering how the IRS will figure my AGI since I worked 2 jobs. Do they only take the actual amount of income I received from my new, lower paying position (May-Dec), or do they use a formula to calculate what I would have earned the prior 4 months if I had this lower paying job and do they add those months on top to calculate AGI? They can’t use the income amount from my old job because I was making way more, so how do they calculate it? I’m worried because I received an EOY bonus which (depending on how they calculate AGI), will likely push me over the 400% above poverty line and I’ll owe ALL of the advanced credits. This arbitrary number seems crazy, you go 1 dollar over it and owe thousands back to the IRS. Instead of some kind of sliding scale where if you go above certain limits you start losing the advanced credits but not owe a huge chunk for exceeding by a few dollars. The idiots that wrote and approved this plan, our representatives, OBVIOUSLY didn’t consider the poor schlub middle-class guy with a family of 4 paying 2 college tuition bills, food, mortgage and every other everyday bill, somehow cannot afford a 1700 health insurance bill while earning a certain amount, but go over that amount by a dollar and now he can afford it???, Frigging’ insanity, can’t wait for Trump and the Republican congress to replace this disastrous govt run nightmare.

  • Rob Cullen December 28, 2016, 4:46 pm

    @Dave: The formula that the IRS uses to calculate your AGI for the Obamacare subsidies is basically the same one that they use to calculate your AGI when you file your taxes at the end of the year (with a few small tweaks you can read about here: http://laborcenter.berkeley.edu/pdf/2013/MAGI_summary13.pdf ) so, yes, it would include income from both jobs and your EOY bonus. If that annual AGI is above 400% of the poverty line (which for a family of 4 this year will be about $97,000) then you would have to pay back the entire subsidy.

    Also a quick note on your other comments:
    Yes, it’s dumb that there’s a hard cutoff at 400% of the poverty line. The easiest way to fix that would be to expand the advanced credits so that they reach people like yourself, who are higher on the income scale, but have to pay more for coverage because they are older (Obamacare lets insurers charge older adults 3x as much as younger ones). Democrats would love to expand Obamacare’s advanced credits that way, but Republicans in Congress have refused.

    Most replacement plans from Republicans I’ve seen would make you worse off- some have proposed letting insurers charge older people even more (5x as much as younger people), others would scrap the tax credits altogether. There are one or two that might be better for you personally: for example, Tom Price (Trump’s pick for health secretary) has a plan where subsidies would be divvied up by age instead of income, so older people would get larger credits than younger people, but the max credit is only $3,000. Depending on what your current income is, it might be a bigger subsidy than what you get now, but people with lower incomes end up getting screwed by Price’s plan.

    Don’t know if you tried to get coverage on the individual market before Obamacare, but for the vast majority of people things are better now. There are obviously a bunch of problems with Obamacare, but that’s been the case with any big bill like this. Usually what happens is Congress passes fixes, but like I said above, Republicans have blocked all of them, figuring (apparently correctly) that people will blame Democrats for any problems. I’d love to see Republicans come up with something better, but everything they’ve proposed so far would leave far more people without access to decent coverage.

  • kyle December 28, 2016, 9:48 pm

    Thank you for clarifying some of the transitional areas of Obamacare.

    For those of us concerned about dancing in the churn zone over the next year (between the lower limits of ACA eligibility and upper limits of Medicaid eligibility in expanded states) – And I’m certainly trying to stay in the ACA zone! How exactly does the exchange calculate eligibility? I’m specificly concerned that the pay stubs I have to submit by March may be not be consistent enough to show income high enough… Over the next year I can work an extra job to earn enough to certainly qualify by the end of the year if needed. I’m a year out from cancer treatment and things are going well but having and keeping good coverage as well continuity with treatment are all important. My income is unpredictable from month to month.

    Thank you

  • Rob Cullen December 29, 2016, 12:02 am

    @kyle: The exchange initially calculates eligibility based on whatever income you tell it– but if that’s different from IRS and other records, they’ll ask you to verify your income. They shouldn’t care all that much if your income is inconsistent from month to month, as long as you can show some evidence that your actual income for the year will be roughly what you estimated. Pay stubs and a letter explaining that your income varies should work for that.

    If your current income is too low though, saying that you plan on getting a second job later probably wouldn’t help– they’ll likely just go with your current income, and have you report the change in income later, whenever you start the new job.

  • Chris January 5, 2017, 10:54 am

    If I convert a traditional IRA to a Roth IRA, will the amount converted be considered modified adjusted income and therefore be considered income as it applies to qualifying for insurance subsidies via the healthcare marketplace?

  • Rob Cullen January 5, 2017, 2:38 pm

    @Chris: I think so– a good general rule is that if the income is taxable then it does count toward your MAGI for determining your insurance subsidies. You’d probably want to check with a professional tax preparer to be sure though.

  • Tom January 26, 2017, 5:42 am

    I live in Texas which did not expand medicaid and I have been self employed for almost 15 years. In a family of 6. My kids are covered my medicaid but my wife and I do not qualify because the income limit for adult medicaid in Texas is extremely low at just over $400 per month. Until Obamacare came along, my wife and I were uninsured and my wife has more recently developed a serious medical condition that the thought of losing our current coverage through Obamacare now is quite frightening. So priority 1 for me is staying covered, My wife and I are already on a health plan through the marketplace for 2017. I expected an income of slightly over the poverty line for both 2016 and 2017, but I am just about done with filling out my 2016 taxes and have hit a snag. My dilemma is that my total income (line 22 on form 1040) is slightly above the federal poverty line, but my Adjusted Gross Income (line 37) is almost $3000 under the federal poverty line (all this according to the Turbotax calculations) because of additional deductions that seem to be mandatory like line 27 (1/2 self employment tax) and line 29. I am already choosing to not deduct many of the business expenses that I am otherwise entitled. I have a home office but don’t deduct it. I don’t deduct all my vehicle miles. I even leave off most purchases that are legit business expenses. All this just to make sure that I would earn enough to qualify for Obamacare. But I was not counting on there being an Adjusted gross income and in order to make the numbers come out so that my Adjusted gross income is above the poverty line, I need to erase another $3000 in business expenses which makes it look like my business made even more money, and thus I would owe that much more in taxes (or in my case my tax refund is less). So according to turbotax, if I adjust my deductions to bring up the Adjusted gross income above the federal poverty level, my tax refund would be $500 less than it shows right now (at my income level that’s a lot) I’m not sure what I should do here. Do I lower my tax refund by yet another $500 or leave it as is and risk losing our insurance. Any advice is welcome.

  • Rob Cullen January 26, 2017, 10:40 pm

    @Tom: If your priority is staying covered, then yeah, I’d probably take the $500 lower tax refund to make sure you keep the subsidy.

    Under the Obama administration, I’d be more willing to risk it– chances are they’d just ask you to reverify your income. As long as you could send them a ledger or something showing you expected your income to be over the cutoff for 2017, you’d probably be able to keep your coverage. The new administration might have different, stricter requirements for income verification, so I’d try to keep my AGI above the cutoff just to be sure– especially because at your income level, the subsidy you get for insurance is worth much more than $500 for the year.

  • Bria February 1, 2017, 10:16 pm

    I have had Obamacare and it’s been a lifesaver. When I did my taxes I show a net loss on my Schedule C and had to pay no taxes for 2016 after deductions. Where the ACA is concerned I am not sure if this means that I made no money or not. If not then does that mean, in 2016 and going forward for 2017, I will not be covered because I don’t have any income? I know going to a tax professional would help. I had to pay $400 last time and that is a hit I can’t take as a student and self employed individual. I was thinking it may mean I would get more back in my taxes but now I am not sure if it would end my coverage completely. Thanks!

  • Rob Cullen February 2, 2017, 4:51 pm

    @Bria: The ACA looks at your Adjusted Gross Income (well technically Modified Adjusted Gross Income) to determine your subsidy eligibility, so you should look at that box on your taxes. But if you paid no taxes, then yeah, you might be at risk of losing your subsidies for ACA coverage.

    The way it worked under Obama, they’d then probably ask you to re-verify your income– if you expected to be over the cutoff for subsidies in 2017, you could send them a ledger or something as the verification. Under Trump, it’s less clear… but I’d expect the old system for income verification I described to continue at least in the short term.

  • Lori April 8, 2017, 12:23 pm

    I have a business in the state of FL. I estimated a net income of $21,000 for 2016 when I applied for health insurance through the marketplace for me and my husband. My business had a lot more expenses this year than I anticipated and we are actually reporting a loss of $9,000. We do not have any other income to report. Will I be required to pay a penalty? Will I be eligible for Obama Care in 2017 or will they cancel our policy and deny coverage?

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