• Finance

What is a health insurance subsidy and do I qualify?

Looking for an insurance plan for 2015? Freelancers have more options than ever before -- and may even receive help from the government to pay for it.

About 85% of the 8 million people who enrolled through a healthcare marketplace obtained premium subsidies last year, according to HHS. Read on to found out if you qualify! And if you do, learn how to use a subsidy towards a plan on Freelancers Union's National Benefits Platform.

What’s a subsidy?

A subsidy is financial assistance for buying health insurance on the Health Insurance Marketplace (also known as the exchange, or “Obamacare”). In other words, your subsidy helps pay for some of your monthly health insurance costs.

Here are 3 things that determine if you are eligible:

  • How much health insurance costs where you live
  • What your income will be in 2015
  • Your household size

There are a number of third-party websites that can help you figure out if you qualify for a subsidy. Try using the calculator at the Kaiser Family Foundation to find out if you qualify for a subsidy.

Generally, you can make up to 400% the federal poverty level in order to qualify for the advance premium tax credit. For an individual, this is around $46,000. For a family of four, that’s around $95,000. If you make less than this, you will probably be eligible for a subsidy!

I qualify for a subsidy. What now?

If you buy health insurance using the advance premium tax credit, you can apply the credit directly to the health plan in which you enroll.

There are three different ways you can use the advance premium tax credit:

  • You can apply the advance premium tax credit equally throughout the entire year, so that your monthly premiums for your health insurance are lower
  • You can choose to get the entire advance premium tax credit back as part of a tax return at the end of the year
  • You can use only some of your credit during the year and get some of it back in a tax return at the end of the year

Depending on where you live, Freelancers Union may be able to help you apply a subsidy towards a plan. Search on our National Benefits Platform to see which plans are available through Freelancers Union in your area.

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OK, but estimating my income is... impossible.

For many freelancers, income can vary each year, and you never know how much you’re going to make... until you actually make it. Honestly, the subsidy process probably wasn’t designed with freelancers in mind.

For most people, that “estimated income” number (which you may see listed as “MAGI”), will be the same as the Adjusted Gross Income (AGI) reported on your federal tax return (Line 37 on Form 1040, Line 4 on Form 1040‐EZ, and Line 21 on Form 1040A). If you expect to make about the same in 2015, you may want to use that number.

But if you expect to make more or less this year, the government expects you to make your best educated guess. Yup, guess. You may want to start with your 2013 AGI and add or subtract to come to the right number.

Consumers Union has a very good guide on how to estimate your self-employment income here.

What if I estimate wrong?

The good thing to know is that if you estimate either too high or too low, you’re not going to “get in trouble”. The government will try to match your estimated income to your tax statements, but they’re focused on catching big errors, like a person who makes $150,000 a year and but says they’re unemployed.

If you estimate too low, you will receive the rest of your premium tax credit as a credit on your tax return and may receive a tax refund.

If you estimate too high, you may be required to pay back some of your subsidy to the government. This would be charged directly to your end-of-year taxes (or be subtracted from your tax return).

If this seems like a huge headache and you can afford to do so, it might be a good idea to receive your subsidy as a tax credit at the end of the year, rather than applying it to your monthly premium.

What if the government asks me for proof of income?

When you’re applying for a subsidy, if you give an amount lower than your 2013 AGI, you may be required to submit additional documentation proving your lower income for 2015.

Here are some acceptable forms of documentation for freelancers (from Consumers Union):

  • Most recent 1099‐MISC
  • Most recent quarterly or year‐to‐date profit and loss statement
  • Bookkeeping records or a self‐prepared ledger that shows income and deductible expenses
  • Bank statement showing deposits and expenses from your business

What happens if I don’t qualify for a subsidy?

To see what plans are available through Freelancers Union, search by state on our National Benefits Platform. We also offer dental, disability, life and a whole host of other benefits through the platform -- and the profits go back to supporting our social purpose mission.

You can still use the Health Insurance Marketplace or purchase insurance through a private insurer even if you don’t qualify for financial assistance. Browse now.