We are getting lots of questions on this topic and the difference can result in either qualifying for potentially large subsidies or not.
It's very important for self-employed individuals that they isolate the correct income data for establishing eligibility.
Let's look at which income you should consider.
You can always run your Covered California quote with tax credit based on income here:
First, let's look at the relationship between income and subsidy.
Assuming that you meet other requirements (citizenship, residency, etc), your ability to get health subsidy is tied to your best estimate for current year's Modified Adjusted Gross income (roughly line 37 on the 1040) being between 138% and 400% of the Federal Poverty Level.
Check out the 400% of Income Covered California guidelines here.
Below 138%, you may qualify for Medi-Cal.
Where we keep seeing an issue is that people are estimating income based on their self-employed or business gross income and not their personal.
Let's look at an example:
Sally is self-employed and files a Schedule C (sole proprietor) for taxes.
She estimates her gross business income to be $60K. This figure, however, does not take into account business expenses which she estimates to be $30K.
Many people like Sally are estimating their gross income as the business income of $60K which would put them out of the range of a subsidy for a single person ($46K).
The key here is to look at your 1040 from last year.
Line 37 at the very bottom of page 1 lists your Adjustment Gross Income which for most people (who don't have foreign income, SS benefits, and tax-free interest, etc) will be the number to look at.
As you look up the 1040, your NET business income (gross business income minus eligible business expenses) is what falls into your gross personal income.
We want the personal.
In the case of Sally, the $30K ($60K gross estimated business income minus the $30K business expense) is the figure to consider and the $30K personal income may allow her to qualify for a subsidy.
You can access the online application here:
To qualify for a health subsidy, we are providing our best estimate for current gross personal income.
Obviously, things change for many people during the course of a year.
You will be able to change data in the system as it happens and must do this.
Keep in mind that if you receive an Advanced Tax Credit (reducing your monthly premium) that you are not eligible for after completing taxes in April, you may have to pay back a portion or all of the advanced tax credit.
You obviously want to avoid this scenario so be conservative in estimating your income but make sure you use the personal income if self-employed. Again, your most recent 1040 is your best template to run this calculation.
The system will actually ask you for current income streams ($20 hourly x 30 hours a week at Tex's Crab Shack, etc) but the self-employed's income and tax situation can be but more complicated.
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