Self Employment & Medicaid

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Self-employment has its perks — you don’t answer to a boss and set your own schedule. However, you also have no employee benefits, such as 401(k) plans and group health insurance. You must pay more of your own money to help fund entitlement programs, such as Medicaid, but if your income exceeds the Medicaid eligibility limits for your state, you may not qualify for Medicaid, leaving you to either purchase private health insurance or else remain uninsured.

Self-Employment Tax

  • As a self-employed individual, you must pay a self-employment tax in addition to your federal income tax. The self-employment tax helps pay for the Social Security system, which includes Medicaid funding. Employees and employers share the cost of Social Security and Medicare taxes, but because you have no employer, you are responsible for paying 100 percent of your share. As of 2011, the U.S. self-employment tax rate is equal to 13.3 percent of your income, though half of the self-employment tax is federally tax deductible.

Existing Medicaid Enrollment

  • If you are currently enrolled in Medicaid, but have become recently self-employed, you may risk losing your coverage. As your income changes, you are responsible for notifying Medicaid of a gain or loss of income. Because self-employment can mean income fluctuations that vary from month to month, your state’s Medicaid program may consider the average of your household income over the course of several months to determine whether or not you are eligible for a continuation of coverage.

Qualifications

  • If you are a low-income earner due to your self-employment, you may qualify for Medicaid if your household income is below your state’s eligibility guidelines. If you have children, you have greater chances of qualifying for Medicaid, as most states provide expanded income eligibility limits for families with children, rather than adults without dependents. Because income qualifications vary by state, you should contact your state’s department of health and human services to determine your eligibility.

Private Health Insurance

  • If you do not qualify for Medicaid, you will still have access to some significant tax benefits if you choose to purchase a private health insurance plan for you and your family. The Internal Revenue Service allows self-employed individuals to deduct 100 percent of the cost of health insurance premiums for themselves and family members as a qualified business expense. Additionally, any out-of-pocket expenses you pay for deductibles, coinsurance or co-pays are federally tax deductible for the amount that exceeds 7.5 percent of your adjusted gross income.

References

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