Self-employed? How to build a subsidy income number you can defend

The premium tax credit asks you to do something genuinely hard: estimate your income for the year your plan covers, before that year has happened. If you're enrolling in November it's next year you're forecasting; if you're enrolling in April through a special enrollment period, it's the year you're standing in.

Somebody on a salary mostly knows their number. When your income moves with the season, or the client, or how well the year goes, "estimate your income" is a much bigger ask than the form makes it sound.

It costs you in both directions

Estimate too high and you pay more each month than you needed to. You do get it back when you file and reconcile, but you've lent somebody the money in the meantime, and the months you needed it most are the months you didn't have it.

Estimate too low and you may owe part of the credit back at tax time. If the gap was large, so is the bill.

Neither one is a catastrophe, and both are avoidable.

Start from net, not gross

A defensible estimate begins with your net profit after business expenses, rather than gross receipts. That one distinction accounts for most of the wildly wrong numbers we see.

From there:

• Average across the last two or three years if your income genuinely swings. One good year isn't a forecast.
• Adjust for whatever you already know is changing — a client you've just signed, a contract ending, a planned drop in hours.
• Subtract the above-the-line deductions specific to self-employment. The deductible portion of self-employment tax and retirement contributions like a SEP-IRA both reduce the income figure that counts for subsidy purposes.

That last one surprises people regularly, because the income the marketplace cares about is often lower than the number that first comes to mind.

You're allowed to change it

This is the part that prevents most of the surprise bills we see, and it's the part almost nobody uses.

Your estimate isn't a one-time declaration. If your income shifts by a lot partway through the year — a large new contract, or a quarter that just didn't happen — you can and should update it with Connect for Health Colorado at that point. Your monthly help adjusts from there, rather than the whole year being settled against a number you knew was wrong back in March.

Make it a habit rather than a rescue. Twice a year is plenty.

Where the line is

We'll help you build the number. Your tax preparer is the one who tells you what counts as income in your particular situation, and if the two of us disagree, they're right.

Send us your last year or two of actual figures and we'll work out something you can defend rather than something you guessed at. Connect for Health Colorado makes the final determination on your application.