How to estimate your income for Marketplace health insurance
If you’re applying for health insurance on the Marketplace, one number you’ll need on hand is your annual income. Are you one of the people looking for a plan now after being laid off or having your hours reduced? Then it can be trickier to estimate your income. If you’re getting ready to apply, here’s how to calculate income for Marketplace insurance.
Why do I need to provide my annual household income when applying for Marketplace insurance?
One of the best parts of Affordable Care Act insurance available through the Marketplace are the special savings available. But the premium tax credits that make this coverage so affordable are based on your expected household income for the upcoming year. And, importantly, not for the past year’s income.
Want to find out what kind of cost savings are available to you for different Marketplace plans? Then you’ll need to estimate annual household income for the year in which you are applying for coverage. And this can be difficult if you’ve been laid off and aren’t sure when you’ll get another job.
What should I include in calculating my household income?
One thing to note is that Medicaid eligibility is based on your monthly income. But when it comes to shopping the Marketplace, your eligibility for tax credits is based on your annual income. So if, for example, let’s say you had a higher-paying job for the first few months of the year. If your hours were reduced in April, you may qualify for Medicaid because your monthly income is low. And this is true even though your annual income is higher.
Who do I include in my household income?
The first thing to do is figure out who is part of your household. You will need to calculate the combined income for yourself, your spouse, and anyone you claim as a tax dependent on your federal income tax return. You’ll need to do this even if not all members of your household need coverage through the Marketplace. Their income will still count towards your annual household income.
What counts as income?
Here’s a comprehensive list of income sources and whether to count them for estimating Marketplace income, Medicaid income, or both.
Your eligibility for Marketplace subsidies is based on your Modified Adjusted Gross Income (MAGI). MAGI is your adjusted gross income (AGI) plus these, if any: untaxed foreign income, non-taxable Social Security benefits, and tax-exempt interest.
Does your income tend to stay the same year-over-year? Then you’ll start with your household’s adjusted gross income (AGI) from your most recent federal income tax return. Don’t have an AGI or think your income will be different this year relative to last year? Then look at a recent pay stub. There, you’ll see an annotation denoting your “federal taxable income.”
If this isn’t on your pay stub, take your gross income and subtract for any withholdings your employer takes out.
Either way, you’ll multiply the amount you earn per pay period by the number of paychecks you expect to get in an upcoming year.
Next, you’ll want to add in any additional tax-exempt income to the amount you just calculated. This includes any tax-exempt foreign income, tax-exempt Social Security benefits, and tax-exempt interest.
You’ll also want to factor in any changes you expect in the next year. These things may include gaining or losing a dependent, or gaining or losing a job.
Don’t include Supplemental Security Income (SSI).
What should I do about unpredictable income?
You might have some other factors to account for in calculating your annual household income. This is especially true if you are self-employed or unemployed.
If you are unemployed, you should still try to estimate your income for the next year. You can do this through calculating unemployment compensation, all household income (from other members of your household), and additional types of income. This might include interest income, capital gains, and alimony. It does not include child support payments, though.
Also keep in mind that most withdrawals from traditional IRAs and 401ks will also count as income. This is true even if you are unemployed.
If you are self-employed, just do you best to estimate what your income and expenses will be for the upcoming year. Keep in mind that you can and should update your income information in the Marketplace if there are any changes to your earnings relative to what you estimated when you applied. Your subsidy will automatically be adjusted for future months so you won’t have any surprises when you file your taxes.
What happens if I overestimate or underestimate my income?
When you file your annual federal income tax return, you’ll reconcile your income for the past year with what you estimated when you applied for Marketplace insurance. If you overestimated your income, you’ll receive additional tax credits in the form of a tax refund for the amount you should have been subsidized. Conversely, if you underestimated your income, you will owe back to the government the difference between what you received in premium tax credits and the amount you should have qualified for based on what you actually earned.
What do I do if I get another job this year?
If you get another job this year and get an offer of health insurance as part of your benefits, you’ll most likely not be eligible for cost savings on your Marketplace health plan. Please keep in mind that these cost savings will be voided even if you don’t enroll in this job-based health insurance. You will most likely want to cancel your Marketplace health insurance plan for yourself and anyone else in your household who is now eligible for health insurance through your new employer.
Get a new job that doesn’t offer health insurance? Then you can keep your Marketplace plan. But you’ll need to report the income change so that your cost savings can be adjusted accurately. If you enrolled in Marketplace coverage through HealthSherpa, you can report changes by logging into your account. If you enrolled in Marketplace insurance elsewhere, you can report changes in your income here.
What other options are available to me on the Marketplace?
Giving your annual household income when applying for Marketplace insurance will also automatically notify you if you qualify for Medicaid or the Children’s Health Insurance Program (CHIP).
Medicaid is the government-funded health insurance program that provides free or low-cost health coverage for eligible low-income adults, children, pregnant women, seniors, and people with disabilities. Jointly funded by the federal and state governments, the program is administered by states under federal guidelines but can differ from state-to-state.
While optional benefits vary per state, every program has to cover costs for mandatory benefits such as physician services, inpatient and outpatient hospital services, laboratory and x-ray diagnostic services, family planning services, and home healthcare, among other benefits. You can see if you’re eligible for Medicaid here.
Children’s Health Insurance Program (CHIP)
CHIP stands for the Children’s Health Insurance Program, and it works closely with Medicaid. This program provides low-cost health insurance for children whose family incomes are too high to qualify for Medicaid. Like Medicaid, the program differs per state, and in some states, CHIP also provides coverage for pregnant women.
Under CHIP, routine medical and dental check-ups are covered, but there may be copayments for other medical services. CHIP may also have a monthly health insurance premium in some states. Know, though, that it’s never higher than five percent of your annual family income.