Many self-employed people will be quick to tell you that getting and paying for health insurance is one of the biggest challenges they face. For some, however, the Affordable Care Act (Obamacare) may make things easier by providing new coverage options for the self-employed.
Are You Self-Employed or an Employer?
Before you start evaluating your options for health coverage, you need understand whether the Affordable Care Act thinks you're self-employed.
The ACA says you are self-employed if you are an independent contractor or a sole proprietor without employees. (If you hire other independent contractors to do some work for you, you probably still qualify as self-employed.) If you are self-employed, you can use Healthcare.gov to compare health insurance plans and sign up for the one that works best for you.
If you have employees – usually, workers whose income you report on a W-2 at the end of the year -- you’re considered an employer. In that case, you can learn about purchasing health insurance for yourself and your employees through the SHOP Marketplace. You will be connected with a registered SHOP (Small Business Health Options) agent or broker who can help you understand your coverage options.
If you aren’t sure whether the people who work for you are independent contractors or employees, read "Independent Contractor (Self-Employed) or Employee?" on the IRS website.
What the Affordable Care Act (Obamacare) Means for Self-Employed People in Montana
Here are seven things self-employed people should know about the Affordable Care Act:
- There's no longer a federal requirement to have health insurance. That means you won't have to pay a tax penalty for going without health insurance unless you live in one of the handful of states that passed their own requirement. As of January 1, 2020, Montana does not require you to have health insurance. For more information, see Do I Have to Get Health Insurance in Montana.
- You can't be denied coverage or charged more because of pre-existing health conditions. If you've been turned down or priced out in the past, you should have new options for coverage under the Affordable Care Act.
- If you don't like your current plan, you can shop for new coverage at Healthcare.gov, the health insurance marketplace for Montana. All plans offered by the marketplace include a package of essential benefits, such as hospitalization, prescription drug coverage, preventive care, and many others.
- If you do like your current plan, you may or may not get to keep it from year to year. If your insurance company cancels your current plan, you will probably be automatically enrolled in a plan deemed "similar." But this may or may not be what you want. If you receive notice that your plan is ending, it's best to comparison shop to increase the chances of finding a plan with options you like.
- You may qualify for cost-saving tax credits to lower your monthly premiums. To qualify for subsidies, you must earn less than 400% of the federal poverty level unless you live in one of a handful of states offering additional subsidies. (In 2020, 400% of the poverty level is $54,360 for an individual and $111,000 for a family of four.) To learn more about cost-saving options, see Ways to Save Money on Obamacare in Montana.
- If you do qualify for subsidies, and your self-employment income fluctuates, your taxes could get more complicated. For more on this issue see "How Obamacare May Affect You at Tax Time," below.
- If you don't qualify for any subsidies, you may find a more affordable plan off the exchange. To continue to fund some subsidies after the Trump administration canceled them, many insurers raised the premiums for silver plans sold on through ACA health insurance exchanges. For those who earn too much to qualify for ACA subsidies, it may be less expensive to purchase a plan directly from the insurer -- or talk to a broker.
You can go to Healthcare.gov to compare the features and costs of a variety of plans, and to determine whether you qualify for subsidies. When you’re ready, you can use the exchange to sign up for the plan you want.
For more information, see How Do I Sign Up for Obamacare in Montana?
How Obamacare May Affect You at Tax Time
As a self-employed person, chances are good that your income rises and falls from year to year. If that happens, your eligibility for cost-saving subsidies will change, too.
When you apply for coverage at Healthcare.gov, you’ll estimate your annual income, then your eligibility for subsidies will be calculated automatically. As your income rises, your eligibility declines. If you underestimate your income during the application process, you may end up owing money to the IRS when you file your taxes. Overestimate, and you may get money back. Don't make your estimation casually. If you do, you could end up with an unpleasant surprise when your file your next tax return.