How to estimate your 2018 income for health insurance
At Stride, we’re always looking for ways to make your healthcare coverage more affordable. That’s why we want to help you understand the most important factor in calculating how much your health insurance should cost: your income.
To buy health insurance for 2018, you need to estimate how much you’ll make in 2018. Your income determines how much you can receive in subsidies. But predicting income can be pretty tricky when you’re self-employed; when you set your own hours, it’s hard to predict what those hours will be for an entire year.
For self-employed workers, business and personal deductions play a huge role in calculating income. The more business deductions you have, the lower your income.
For example, let’s say you’re applying for health insurance, and the Stride Health website asks you for your projected 2018 income.
You know that you received about $50,000 from driving for Uber last year, so you use that number as your estimated 2018 income.
If you put $50,000 into our site, you might see this as your recommended health plan:
Not a bad price, right? But that’s a full-priced plan with no income-based discounts. And the income amount that we’re looking for is your MAGI (Modified Adjusted Gross Income), not how much you’ll receive from Uber next year.
Let’s walk through where this number comes from.
Finding your business profit
You know you’ll receive about $50,000 from driving for Uber next year. But you also have to spend a lot of money in order to be a driver, on things like cell phone data, passenger goodies, car cleaning, mileage, and a whole lot more. When you’re tallying up your income, you should include your business profit. This is your total Uber income minus expenses.
The IRS calls these deductible purchases “ordinary and necessary expenses,” because they’re either typical for your industry, or they’re necessary in order to do your job. Every time you incur an ordinary and necessary expense, you can subtract that amount from your business income!
So you’ve made $50,000, but you’ve spent $1,000 on parking fees, water bottles for passengers, a Spotify subscription, and your cell phone bill. You’ve also been tracking your mileage, and know you’ve driven about 16,666 miles this year for rideshare. Well, you get $.54 for every mile that you drive for your self-employment job, so you get another $9,000 tax deduction on top of that $1,000.
Now your business profit is $40,000!
If your self-employment job is your only source of income, you would use your business profit as your gross income (the sum of all of your sources of income).
Finding your Adjusted Gross Income
AGI is all of your combined sources of income minus the stuff that you shouldn’t be taxed on. The IRS allows you to reduce your total taxable income with personal deductions, which are expenses that you have to pay that shouldn’t be included in your AGI.
Adjusted Gross Income = Total income - Personal deductions
A few examples of personal deductions are:
- Student loan interest
Self-employed health insurance payments
50% of self-employment taxes
Expenses like the ones above should be subtracted from your gross income.
So let’s say your business profit is $40,000 like we calculated above. Let’s also say you make IRA contributions of $6,200 every year. Since IRA contributions is a personal deduction, you can subtract the amount that you pay in contributions from your gross income. Now your AGI is $33,800!
MAGI = Adjusted Gross Income + A little something extra
MAGI is your AGI, plus a few other additions and subtractions (like non-taxable Social Security benefits, tax-exempt interest, and foreign income). In most cases, your AGI is the same as your MAGI.
So if your AGI is $33,800, and you don’t need to add in the forms of income listed above, your MAGI is $33,800.
Let’s put that number into the Stride Health website, with the same profile as before. When asked if you make more or less than $51,000, you have a very different answer.
You'll select "Less than $51,000" after accounting for deductions. Then you'll put in your new income estimate!
After that, you'll see plans that have an accurate subsidy calculation:
Wow, you just saved $2,712 a year on health insurance by taking advantage of the deductions available to you. That’s a beach vacation, or repairs on your car, or an emergency room trip, or 250 burritos.
Here’s our point: The money you earn is not the same as MAGI. So when you take time to calculate your MAGI correctly, you’ll make sure you don’t overpay for health insurance.
That’s how business deductions can come into play when 1099 paychecks are your only source of income. But what happens when you have more than one independent worker job, or have W-2 income as well?
The process of estimating your income is more or less the same, but it involves a bit more math.
For example: You’ve been working for Postmates for a few years, and started driving for Uber a few months ago to make some extra cash. You know you’ll keep driving for Uber all year next year, but don’t have a year’s worth of paychecks to predict how much you’ll make in 2018--let alone how much you’ll subtract in business deductions.
No problem! We can estimate a year’s worth of income and deductions based on a few weeks or months of driving information.
If you have records of 1) how much you’ve made from Uber, and 2) how much you can deduct from that income, you can take an average income total and deduction total for a week or month and multiply it to equal one year of working.
Let’s say you typically make $500 per week with Uber, and you know that you typically spend $50 per week on deductible expenses. You also have been tracking that you drive about 300 miles per week, which comes out to a $162 weekly deduction (.54 x 300).
That means your typical weekly business profit is $288 ($500 - $50 - $162).
You can take that number and multiply it by the 52 weeks in 2018 to find your projected 2018 business profit! Now you know you’ll make about $14,976 in net profit from Uber.
But what if I have W-2 income too?
We’ve got your back. If you work part-time or full-time at a job, your gross income is calculated a little different since your employer will withhold some of your taxes for you--that means that the money you take home isn’t necessarily the number to include in your income calculation.
Since gross income is your income before taxes, you’ll need to use your hourly rate to estimate your gross income, since that’s your income before your employer has withheld any taxes.
So let’s say you expect to make about $300 per week in business profit from Uber next year, and expect to work about 20 hours per week at a local restaurant earning minimum wage of $7.25 per hour.
Your weekly income from the restaurant would be $145 ($7.25 x 20), and your weekly profit from Uber would be $300, earning you a total of $445 per week. Multiply that by 52 weeks, and you’ve got your 2018 gross income of $23,140.
A few extra tips:
If you’ve filed taxes as a self-employed worker before (complete with business deductions), and expect to work about the same amount in 2018, the AGI you reported on your tax return is the best estimate you can find.
When you’re predicting what your business deductions will be, you need proof! You might be asked to submit proof of income with your health insurance application. If you’ve been keeping track of your business deductions all year (via mileage logs, or Stride Tax, etc.), and you expect to work about the same amount in 2018 as last year, you can use the documentation for those deductions as proof.
Drive for Uber, but haven’t been keeping track of your business mileage? One way to make up for lost time is to use your Uber on-trip mileage report. Stride’s got a pretty great Tax Calculator that will tell you how much you can deduct in mileage.