To estimate your 2023 income as a self employed worker, take your income sources before taxes minus any business and/or personal deductions. This will give you your modified adjusted gross income (MAGI) estimate, the number you will use on your health insurance application.
Below are some examples of types of income source and business deductions.
Need an income calculator? -> Tax Act's Adjusted Gross Income Calculator
- Self-employment income
- Wages from a W-2 Job
- Unemployment Income
- Social Security Benefits
- Social Security Disability (But do not include Supplemental Security Income [SSI])
- Retirement or Pension Income (Most IRA and 401k withdrawals)
- Alimony Received
- Capital Gains
- Investment Income (Interest & dividends earned on investments, including tax-exempt)
- Rental & Royalty Income (Use net rental and royalty income)
- Untaxed Foreign Income
- Business deductions: The IRS allows you to deduct any purchases you made related to your self-employment that are considered typical of your industry or necessary for you to do your job.
- Personal deductions:
- Alimony Paid
- Student Loan Interest
- Moving Expenses (If moving to be closer to job)
- IRA Contributions (If no retirement account through a job)
- Educator Expenses (Teaching supplies paid out-of-pocket)
- Tuition Cost
- Include estimated income of all household members who are required to file a tax return.
- Do NOT include: Child support, gifts, supplementary security, veterans disability payments, workers’ compensation, proceeds from loan.
- Do NOT deduct: Charitable contributions, child/dependent care expenses, child support payments, HSA Deposits, medical Expenses, mortgage interest, property taxes, state income taxes, etc.
- Utilize the Stride app to easily keep track of your deductions for the year!
- Not sure if something is deductible? Check out our Stride guides.
Example income estimate calculation
1. In this example, a rideshare driver earns $51,000:
- However they spend $2,000 on expenses including parking fees, water bottles for passengers, a Spotify subscription, and a percentage of their cell phone bill.
- They've been tracking their mileage, and have driven 16,071 miles total. They'll get $.56 for every mile driven for self-employment work, so they get another $9,000 deduction on top of that $2,000.
When they take these deductions off their total earning, they have their business profit: $40,000.
2. They also make IRA contributions of $6,200 every year. Since an IRA contribution is a personal deduction, you can subtract the amount that you pay in contributions from your gross income.
$40,000-$6,200 (personal deductions) = $33,800 (AGI)
3. Last step would be to subtract any other qualifying deductions such as non-taxable Social Security benefits, tax-exempt interest, and foreign income. If you don't have any of those deductions, you're done!
MAGI = $40,000 - $6,200 - (other qualifying deductions) = $33,800
- If this person was applying for health insurance, they would put $33,800 as their total income instead of the starting amount of $51,000.
Here’s our point: The money you earn is not the same as your MAGI. Accurately reporting these deductions can help you qualify for a larger subsidy which will increase the amount you save on healthcare! So when you take time to calculate your 2023 income for health insurance correctly, you’ll make sure you don’t overpay for health insurance.
What happens if I estimated my income incorrectly?
Health insurance subsidies are reconciled by the IRS when you file federal taxes for that coverage year. When folks overestimate their income, they typically received a lower subsidy than they were supposed to during the year. In that case, the IRS will return any unpaid subsidy on their tax return for that coverage year.
If you underestimated your income and ended up receiving too high of a subsidy, you may see any overpaid subsidy taken out of your tax return for that year.
How do I update my income?
You can update the income reported on your health insurance application year-round. You can do so using your personal exchange account or Stride can update on your behalf!