Health care costs image via Shutterstock.
Last week, a 56-year-old Florida Realtor named Dianne Barrette got a good deal of publicity — not because of her real estate activities, but because of health insurance.
It turned out that she was one of hundreds of thousands of Americans who have been informed by their health insurers that their plans will not be renewed for 2014 because they don’t comply with the new “Obamacare” requirements.
Her insurer, FloridaBlue, offered her a new plan, but told her the premium would be $591 a month, far more than the approximately $50 a month she had been paying. Barrette, who makes $30,000 a year, could not pay for such a plan. She soon became the poster child for the anti-”Obamacare” crowd, making appearances on Fox News and other media.
However, when reporters dug a little deeper into Barrette’s story, the truth turned out to be a quite different than initially reported: Rather than being an “’Obamacare’ victim,” she was an “Obamacare” beneficiary. Because of her relatively modest income, she qualifies for substantial tax credits if she purchases new health insurance through her state’s online exchange.
Reporters found that, with the credits, she could obtain far better health insurance than she had before for $100-$150 per month out of pocket, with the credits paying for the rest. She was delighted and quickly became a nonperson to Fox News.
Don’t let the naysayers fool you. For most self-employed Realtors like Dianne Barrette, and other self-employed people, “Obamacare” is the best thing that’s happened in decades. Historically, obtaining affordable health insurance coverage has been one of the greatest challenges the self-employed face, especially those with pre-existing medical conditions.
Many self-employed people could afford only limited major medical coverage or went without health insurance entirely. One survey found that 24 percent of self-employed people lacked health insurance.
As a result of “Obamacare,” every self-employed person can now obtain health insurance coverage, even if they have pre-existing conditions. Moreover, if they qualify for tax credits, their insurance may not only be better than they had before, but cheaper as well.
As we covered in a previous column (see “Many real estate pros will qualify for ‘Obamacare’ credits”), like Dianne Barrette, you will qualify for health insurance credits if your adjusted gross income (AGI) is no more than four times the federal poverty level.
This is more than it sounds like. A single individual qualifies if his or her AGI is no more than $46,000 per year, while a couple can have an AGI up to $62,000. To obtain the credit, you must apply for and obtain health insurance through your state health insurance exchange. (Links to your state exchange are at www.healthcare.gov.)
The amount of the credit is determined on a sliding scale based on your age, household size and income. Those who are the oldest and have the lowest incomes will receive the largest tax credits.
If you’re young, your monthly credit may not amount to much, particularly if your AGI is near the upper end of the 400 percent FPL limit. However, if you’re older, the credit can be quite substantial because health insurance coverage costs up to three times more for older people than for the young (except in New York, Vermont and Washington, D.C., where premiums are the same for all ages).
For example, in San Francisco, a 25-year-old single person with an AGI of $35,000 would qualify for a premium tax credit of $19 per month. A 55-year-old individual with the same AGI would qualify for a $380 per month credit.
The key to obtaining health care premium credits is to keep your AGI below 400 percent FPL threshold for a family of your size.
Your AGI consists of all your income minus certain deductions, including those for IRA and retirement plan contributions, the self-employed health insurance deduction, and health savings account deduction. (An excellent chart showing how to calculate MAGI can be found at laborcenter.berkeley.edu.)
When you’re self-employed, you have many ways to control the size of your AGI each year and ensure you qualify for the credit. For example, you could:
- work less so your business income is smaller.
- make tax deductible contributions to retirement plans such as an IRA, SEP-IRA, SIMPLE Plan, or qualified plan such as a 401(k), or
- increase deductible business expenses by buying equipment or other things you need for your business.
Example: Mark and Mary are a married couple who file jointly and obtain health insurance on their own. Mark doesn’t work and Mary earns net self-employment income of $65,000 from her real estate sales business. That, combined with interest and investment income, leaves them with a $70,000 MAGI, $7,960 over the $62,040 limit. They each establish IRAs and contribute a total of $10,000 to them. Their MAGI is now $60,000, well within the threshold. They now qualify for the “Obamacare” tax credit provided that they obtain their insurance through their state health insurance exchange.
However, before you go to the trouble of rearranging your finances, check the premium calculator at your state health insurance exchange website to see how much you could save based on your AGI and age.
Stephen Fishman is a tax expert, attorney, and author who has published 20 books, including “The Real Estate Agent’s Tax Deduction Guide,” “Working for Yourself,” “Deduct It!,” and “Working with Independent Contractors.” His website can be found at fishmanlawandtaxfiles.com.