Obamacare: business income counts as income

My husband and I own two businesses. To figure our income for Obamacare, do we use our total income or our net income for the year?  Thank you for any help you can give me.

Sue in Ohio

Dear Sue,

Your income for your health insurance subsidy is your Modified Adjusted Gross Income (MAGI).  First you take your Adjusted Gross Income from line 21 of Form 1040A or line 37 of Form 1040 (line 4 for 1040EZ) and then add any tax-exempt Social Security, interest, or foreign income you have.  Your personal Adjusted Gross Income would reflect your net income from your businesses, assuming that your business is structured to tax business profits as income to the owners.   An LLC or an S-corporation “flows” profits to the owners, who are then taxed.  A C-corporation pays corporate taxes on profits; owners pay taxes as they draw the money from the company.

If your income is not likely to change from what you had in 2012, then you could use your 2012 tax return (filed in the spring of 2013, if you are a calendar-year filer)  to estimate your income for health insurance subsidies.  If your income does swing widely from one year to the next, then you need to decide whether you want to over- or under-estimate your income for the subsidies.  If you under-estimate it, you might get more in subsidies, and have to pay it back at tax time.  Over-estimate it and you might have a hard time paying your health insurance each month; but you would get a refund at tax time.

Whatever you do, you will “true up” with the IRS when you file your taxes.

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Linda Riddell

About Linda Riddell

A published author and health policy analyst with 25 years’ experience, Linda Riddell's goal is to alleviate the widespread ailment of not knowing what your health plan can do for you.