Did you know that in 2014, 10% of all workers were self-employed? And IF you are self-employed, it is much more likely that you will need health insurance through the Marketplace or Medicaid.
If you have your own business, or you work as a contractor for somebody else (you get a 1099 at the end of the year), then reporting your income is a bit (but only a bit!) more complicated than if you get a regular paycheck. And because it is a bit more complicated, it keeps some people from applying for health coverage at all. Since health coverage is essential (and mandated!), here are some suggestions for how you can report your income.
WHAT WE MEAN BY INCOME
When we work with someone who gets a regular paycheck, we tell them that we have to look at "gross" income. Gross income is your income before you take out taxes.
Let's say you work full-time at $10/hour.
Your gross income every week is going to be 40 hours x $10/hour, or $400 per week. There are more than 4 weeks in a month (except February!), so your monthly gross income is actually:
$400 (per week) x 4.3 (weeks in the month) = $1720/month
This could be quite different from your "NET" income, which is after taxes are taken out. So you might be "making" $1720/month, but you say, "But I only bring home $1300!" True, but that is your "net" income.
When you are self-employed, it's quite a bit different. You are responsible for paying your own taxes, paying for your office supplies, mileage expenses, etc. So if you are a carpenter, you might have expenses for materials (wood, nails), equipment, mileage to get to a job, possibly even paying a helper. Since you are running your own small business, all of this gets taken out as the cost of running your own business. In this case, the government thinks of your business's "gross" income as your income minus your expenses.
The trick is, you have to keep track of that!
1. MONTH BY MONTH ACCOUNTING
The idea behind this is simple, and it actually makes annual reporting easier. Using a hand ledger, a spreadsheet, or an app on your phone, you keep track of all of your income.
So, for example, if you run a cleaning business, you might list your income every month like this:
TOTAL INCOME $1,800
MINUS EXPENSES $260.25
EQUALS GROSS/BUSINESS INCOME $1,540
MONTHLY INCOME = $1,540
ESTIMATED ANNUAL INCOME (IF YOU WORK ALL YEAR) WILL BE $1,540 X 12 = $18,480
2. ANNUAL REPORTING (TAXES)
If you do month by month reporting, then at the end of the year you can add up all of your months and you'll have your annual report, ready to use for filing your taxes.
If you don't expect your income to change much year to year (you are doing the same type of work, and you expect to make about the same amount of money), you can use your taxes as proof of your income, and will be accepted as proof of income with both the Marketplace and Medicaid. All you need is the front page of your taxes, which shows your adjusted gross income (AGI).
YOUR 2015 AGI = $18,750
ESTIMATED 2016 ANNUAL INCOME = $18,750
ESTIMATED 2016 MONTHLY INCOME IS $18,750/12 = $1,562.50
(If your income is irregular, because you work a lot in some months and not at all in others, your annual income may represent your work better than monthly income.)
NOTE: If you DO think your income will change a lot--for instance, because your business is booming or because you have lost several clients--then you are better off using your monthly statement as proof of income. As your income goes up, you can expect to pay more for your health care. (But check with an accountant to see under what conditions you can deduct all or part of it.)
“Going from a corporate job for many years to starting my own business, and being single, having an easy way to get health insurance that I can afford, has been incredibly helpful. And as my business grows and becomes more profitable, I’m paying more for insurance. Makes perfect sense to me. Additionally, something like Obamacare would have helped my mother out so significantly (25 years ago) when she lost her insurance after my father died, his COBRA ended, and she had cancer.
— Self-employed therapist
Resources for the Self-Employed
Don't get stuck, and have no insurance, and have to pay the health care penalty, just because you were intimidated by keeping records of your income and expenses.
Here are some helpful resources!