Self-employed? How to estimate income for the Marketplace

The Marketplace figures your premium tax credit from the household income you expect for the coverage year, and for a self-employed person that starts with net profit after business expenses, not gross receipts or last year’s return. At tax time, Form 8962 compares the credit paid in advance with the credit your actual income supports, and you settle the difference.

None of this is tax advice. It’s how the Marketplace side works, so you can bring better numbers to whoever prepares your taxes, and they should check the figures that apply to you.

What income does the Marketplace want?

It wants your household’s modified adjusted gross income for the year: your adjusted gross income plus any tax-exempt interest, nontaxable Social Security benefits and excluded foreign income. Household means you, a spouse if you file jointly, and anyone you claim as a dependent who has to file a return. For the business, the number that counts is net profit, meaning what the business took in minus its expenses. Net, not gross.

Some adjustments lower adjusted gross income further, such as the deductible part of self-employment tax and contributions to a self-employed retirement plan. Your preparer can tell you which apply. If you also deduct health insurance premiums as a self-employed person, that deduction and the premium tax credit depend on each other, and IRS Publication 974 has the method for working them out together.

The mistakes that cause trouble tend to be simple. People enter gross receipts, or the total from their 1099 forms, which ignores expenses. They copy last year’s income without adjusting for a client they’ve already lost or a contract they’ve already signed for this year. Or they leave out a spouse’s paycheck.

How do you build the estimate?

Build it from the bottom up, and keep a record of how you got there:

1. Start from last year’s net profit as a baseline.
2. Adjust it for what you already know about this year: contracts signed, clients lost, rate changes, and the slow months you can see coming.
3. Subtract the adjustments your preparer expects, such as the deductible part of self-employment tax and any retirement contributions you plan to make.
4. Add everyone else’s income in the household, including a spouse’s wages and any interest, rental or side income.
5. Write down each figure and where it came from, and save it with your application.

Here’s how that looks with numbers. Say you’re a self-employed designer, married filing jointly, and your spouse earns $38,000 in wages. Last year your net profit was $54,000, but a client who made up a sixth of your work left in March, so you project $45,000 for this year. Your household estimate starts at $83,000, and your preparer’s estimate of your adjustments brings it down from there.

What happens on your tax return?

Early in the new year, the Marketplace sends Form 1095-A showing the advance credit paid on your behalf each month. You file Form 8962 with your federal return to compare that advance credit with the credit your final income for the year actually supports. Use too much and you repay it. Use too little and you claim the rest as a credit.

The repayment rules got stricter. For tax years before 2026, a cap limited how much of the excess many households had to repay. For 2026 and later, the IRS says there is no repayment cap: you repay the full amount by which your advance credit exceeds the credit you qualify for.

If you received advance payments, you have to file a federal return with Form 8962 attached, even in a year you otherwise wouldn’t need to file. Skip it and the Marketplace can stop your advance credit in a future year.

How do you update your income mid-year?

Report the change on your Marketplace application as soon as you know it, not at year-end. The Marketplace then recalculates your advance credit for the rest of the year, which spreads the correction over the remaining months instead of dropping it all on your tax return.

Say that in July you sign a six-month contract that adds $3,500 a month in net profit. Your year just grew by $21,000. Update the application in July, and the Marketplace recalculates the advance credit for the rest of the year using your new total. Wait until you file, and the whole difference shows up on Form 8962 at once.

The same works in reverse. If a slow season or a lost client drops your income, update it the other way; you may qualify for more help now instead of waiting for a refund next spring.

How do you avoid a repayment surprise?

These habits keep the tax-time difference small:

• Estimate net profit, not gross receipts, and include everyone in the household
• Keep a monthly profit and loss statement, even a simple spreadsheet
• Update your application within days of a change you can see coming, not at year-end
• Take less than your full advance credit if your income is hard to predict, and claim the rest when you file
• Set aside part of any unusually good month until you’ve filed
• Give your tax preparer your 1095-A and your year-end profit and loss as early as you can

Watch the top of the range. The larger credits Congress added in 2021 expired at the end of 2025, and 2026 plans went back to the original rules, which include an upper income limit. If your final income lands above it, you repay every dollar of advance credit you received. Congress has debated bringing the larger credits back, so check HealthCare.gov for the rules that apply to 2027 plans; it posts 2027 amounts starting November 1.

When your estimate is ready, run it through our plan comparison to see what that number does to your options.

Quick answers

What if the Marketplace asks me to prove my income?

That’s a data matching request. It’s common for self-employed people, because this year’s estimate often doesn’t match the income on last year’s tax return. You usually have 90 days to send documents, and a Schedule C, a recent profit and loss statement, or a self-employment ledger that shows your name, business name, the dates covered and your net income is the kind of record they accept.

Can I just use last year’s tax return?

As a starting point, yes. The Marketplace wants this year’s expected income, so adjust last year’s figure for anything you already know has changed, then check plans with that estimate.

I’m hiring my first employee. Does that change anything?

It can. Once you have at least one employee who isn’t an owner or an owner’s spouse, a small group plan or an individual coverage HRA becomes possible, and either one changes how your own coverage and taxes work. See how group coverage works, and talk to your tax professional before you switch.