How do I estimate my income to get health insurance subsidies?

If you qualify for subsidies to make your health insurance less expensive, it's important that the income you report on your health insurance application is as close as possible to what you report as your modified adjusted gross income on your taxes at the end of the year. If you made more than you expected, you may owe taxes, and if you didn't take enough subsidies during the year, you may get a larger refund.

When you apply for health insurance, you'll be asked to share your expected modified gross adjusted income (MAGI). This number is not only used to figure out whether you qualify for subsidies, but also whether you qualify for low- or no-cost insurance through Medicaid or CHIP.

Here’s a step-by-step guide to calculating your MAGI accurately for your health care application.

1. Include everyone in your household. Be sure to count income for everyone in your household who you list on your tax return, including you, your spouse, and any dependents who have a job – whether or not they need health care coverage through the health insurance Marketplace. That’s because whether you qualify for marketplace health care savings is based on the income from all members of your household, even if they get health insurance through their employers. If you're married, you must file jointly with your spouse to qualify for subsidies.

2. Gather the required documents. You’ll want to have last year’s tax returns on hand for all members of your household, if possible. You may also be asked to submit pay stubs from the past year.

3. Consider next year’s income. While you should use last year’s income as a baseline if your job situation is similar, know that you’re calculating your income for the year you'll be covered by your health insurance plan.

4. Start with your AGI. A good place to start is your adjusted gross income, or AGI, from your most recent tax return. You can find your AGI on Line 37 of Form 1040. If you don’t know your AGI, find the “federal taxable wages” on your paystub, add in any tips you received, then multiply that number by the number of paychecks you expect to take home in the following year. See below if you’re a new freelancer and don’t have an AGI or pay stubs to reference.

5. Add specific tax-exempt income. Take your AGI and add the following income, if any apply to you:

• Tax-exempt social security benefits (including tier 1 railroad retirement benefits).
• Tax-exempt foreign income.
• Tax-exempt interest.
• Retirement or pension income (IRA or 401K withdrawals).
• Unemployment compensation.
• Social Security.
• Social Security Disability Income (SSDI).

You don’t need to include:

• Supplemental Security Income (SSI).
• Worker’s compensation.
• Veteran’s disability payments.
• Proceeds from student, home, or bank loans.

6. Adjust for changes in your income for the upcoming year. If you expect anything about your financial situation in the next year to be different from last year, be sure to include it in your calculation. Consider whether in the next year you’ll likely:

• Get a raise or promotion with your current company.
• Take a job with a new company.
• Quit your job and go freelance or start a small business.
• Earn new income from self-employment.
• Have other changes in your overall income, including alimony payments, financial investments, or Social Security.
• Give birth, adopt a child, or have a child who's no longer a dependent.

7. Calculate your income if you’re newly self-employed. As a freelancer, it can be tough to calculate your estimated AGI – especially if you’re newly self-employed. Check out the IRS’s tax tips for the self-employed. While you should check with your personal accountant to be sure you’re accounting for the right income and expenses in the right amounts, here’s an idea of the main steps to reaching an estimated AGI if you don’t have a similar tax return from last year to reference:

• Calculate your self-employment earnings. This is the total amount you expect to earn.
• Calculate your business expenses. These should be what you’ll report on schedule C of your 1040 and generally include home office, domain and web hosting, advertising, telephone and internet, office supplies, business meals, auto expenses, legal and professional fees, and retirement contributions.
• Reach your net income. Also known as profit, this is your self-employment income minus your business expenses. If what you earn as a freelancer is less than your expenses, you report a profit on the Marketplace; if it’s less, you report a loss.

8. Adjust your application if your income changes. It’s always a good idea to update your Marketplace application after any major income changes so that you pay just the right amount towards your health insurance. If your income drops, you may be able to qualify for more assistance to avoid losing your coverage altogether. You don’t want to end up shelling out more or less than necessary, since it affects how much you’ll get back (or have to pay) when you file your taxes at the end of the year. Once you buy health insurance, you can still make changes to your application throughout the year if your income changes in ways you hadn’t expected.

Keep in mind you can only claim the subsidies you're eligible for if you enroll in a plan through ihealthagents.com. If you're interested in Oscar plans, you can get a quote and follow the prompts to enroll through the Marketplace for your state.