Riley Hart is a general personal-lines insurance educator. This guide is consumer education only, not personalized coverage advice, and Riley Hart is not a licensed agent or a financial advisor.
The short answer
If you work for yourself, the Marketplace does not judge your subsidy on gross receipts. It judges it on projected household income for the coverage year, measured as modified adjusted gross income, or MAGI. For self-employed workers, that starts with net income: gross revenue minus allowable business expenses.
Estimate that annual figure as carefully as you can, then update it during the year if income moves. At tax time, IRS Form 8962 reconciles the advance credit you received against the credit you actually qualified for, using Form 1095-A.
That step matters more in 2026. Enhanced subsidies expired on December 31, 2025, and the 400 percent cap is back for 2026. Above that line, the credit is zero. The IRS also confirms there is no cap on repaying excess advance credit for tax years after December 31, 2025.
What the Marketplace counts: projected income and MAGI
HealthCare.gov states the rule plainly: Marketplace savings are based on expected household income for the year you want coverage, not last year’s income.
MAGI is the figure used to decide if you qualify for premium tax credits. HealthCare.gov defines MAGI as adjusted gross income, or AGI, plus untaxed foreign income, non-taxable Social Security benefits, and tax-exempt interest, if any apply. Supplemental Security Income is not included. Count yours, your spouse’s, and the income of everyone you will claim as a tax dependent.
For self-employed workers, report net income, not gross: total business revenue minus allowable business expenses, the same profit figure reported on Schedule C. A freelancer who bills $80,000 and spends $20,000 on business costs has $60,000 of self-employment income for this purpose.
The 2026 change: the 400 percent cliff is back
From 2021 through 2025, enhanced credits removed the old 400 percent ceiling. Those enhancements expired on December 31, 2025, and for 2026 the original ACA structure applies again.
For 2026 coverage, the Marketplace uses the 2025 HHS poverty guidelines: $15,650 for one person and $32,150 for a family of four in the 48 contiguous states and DC, plus $5,500 for each additional member.
| Household size | 100 percent | 400 percent |
|---|---|---|
| 1 | $15,650 | $62,600 |
| 2 | $21,150 | $84,600 |
| 3 | $26,650 | $106,600 |
| 4 | $32,150 | $128,600 |
Below 100 percent, a household generally does not qualify for a premium tax credit, and Medicaid may be the relevant program instead, depending on the state. Above 400 percent, the credit is zero for 2026. It does not phase out gradually; one dollar over the line removes the whole credit.
A worked example with round numbers
This example is illustrative, with round numbers, for a single freelancer. It is not a tax calculation for a named person.
Gross receipts $80,000, minus expenses $20,000, equals net profit $60,000. Minus the deductible half of self-employment tax, about $4,200, equals $55,800. Minus the health insurance deduction, $6,000 in this example, equals estimated MAGI of about $49,800.
Divide $49,800 by the poverty guideline for one person, $15,650. The result is about 318 percent of the poverty level, with about $12,800 of headroom below the $62,600 cliff.
Add $10,000 of extra net profit, and the estimate moves to about $59,000. Add $15,000 instead, and it moves to about $64,000, above the cliff, where the 2026 credit would be zero.
Caution: the $6,000 deduction figure is simplified. If you also receive a premium tax credit, the two affect each other, and the IRS provides a worksheet method in Publication 974 to resolve that loop.
How to build your estimate
Use last year’s return as a baseline, then adjust it: start with household AGI from the most recent return, add the MAGI items if they apply, then adjust for expected changes.
Take last year’s net Schedule C profit, not gross receipts. List contracts signed or reasonably expected. Subtract expected business expenses, add other household income, and subtract expected adjustments, including the deductible half of self-employment tax and the health insurance deduction, if you qualify. Write down a low, central, and high case. If the high case crosses the 400 percent line, that is your warning flag, not a reason to pick the low case.
If income is seasonal, do not annualize one good month. Check quarterly, using year-to-date profit plus a realistic view of the rest of the year.
Form 8962: reconciling the subsidy at tax time
The advance premium tax credit, or APTC, is the subsidy paid to your insurer during the year, based on your estimate. Form 8962, Premium Tax Credit, reconciles that estimate against your actual income.
You must file Form 8962 if you received APTC, or if you want to claim the credit but took none in advance. The IRS requires a return with Form 8962 attached even if you would not otherwise be required to file. If you had Marketplace coverage, you will receive Form 1095-A, usually by early February. It gives the three monthly figures Form 8962 needs: column A, your enrollment premium; column B, the second lowest cost silver plan premium, the benchmark for the credit; and column C, the APTC paid on your behalf.
Form 8962 recalculates the credit you actually qualified for. If actual income was lower, the difference can be a refundable credit. If it was higher, you generally repay the excess. For tax years before 2026, a repayment cap limited how much lower-income households had to repay. For tax years after December 31, 2025, the IRS confirms there is no repayment cap (IRS Fact Sheet FS-2025-10, December 23, 2025). That is a second reason a mid-year update matters in 2026.
Updating your application mid-year
This is the practical fix most subsidy guides skip. You do not have to wait until tax time to correct an estimate. HealthCare.gov says to update your application as soon as possible when income or household changes.
An update changes APTC for the remaining months. It does not fix APTC already paid, but it stops further excess. Report an update when a new contract raises expected income, when work dries up, when a spouse starts or stops work, when a household member joins or leaves, or when expected income moves close to the 400 percent line.
For the federal Marketplace, log in, select the application to update, select Report a Life Change, then select Report a change in my household income, size, in-state address, or other information. Enter the new expected annual income, and complete every step on your To-Do List. Changes do not take effect until you finish all steps. You can also update by phone or in person, but not by mail. If you enrolled through a state-run Marketplace, use that state’s portal. After an update, read the new eligibility notice before the next premium is due, and save it.
Mid-year update checklist
- Recalculate expected annual MAGI from year-to-date profit plus the rest of the year
- Check the distance to the 400 percent line ($62,600 for one person, $128,600 for a family of four in 2026)
- Log in and select Report a Life Change
- Enter the new expected annual income, not just one month’s change
- Complete every step on the To-Do List, and confirm the change took effect
- Save the new eligibility notice, and note the new premium and APTC
- Record the new estimate and the report date
- If income rose sharply, set aside funds for repayment on earlier months
- Repeat quarterly, or when a contract is signed or lost
The self-employed premium deduction
Separate from the subsidy, self-employed workers may be able to deduct health insurance premiums for themselves, a spouse, dependents, and a child who was under age 27 at the end of the year, even if that child is not a tax dependent. It covers medical, dental, and vision premiums, and qualified long-term care premiums subject to age-based limits.
The deduction is figured on IRS Form 7206 and reported on Schedule 1 (Form 1040), line 17. Because it is an adjustment to income, not an itemized deduction, it lowers AGI whether or not you itemize. A lower AGI generally means a lower MAGI, which can mean a larger credit.
Three limits apply. First, you need net profit: the deduction generally cannot exceed earned income from that business, reduced by the deductible half of self-employment tax and any self-employed retirement contributions, and it cannot create or increase a loss. Second, you cannot deduct premiums for any month you were eligible for a subsidized employer plan, yours, your spouse’s, or a dependent’s, even if you did not enroll. Third, it does not reduce self-employment tax.
The deduction and the credit interact: the deduction lowers MAGI, which can raise the credit, and a larger credit means less premium was paid out of pocket, which can lower the deduction. The IRS addresses this loop in Publication 974. Your deduction plus your credit cannot exceed the premiums you actually paid.
What to do next
The work is not a single estimate in open enrollment. It is an estimate, a quarterly check, an update when income moves, and a reconciliation at tax time. Start with net profit, not gross receipts. Watch the distance to the 400 percent line, and keep your 1095-A and a simple income tracker in one place.
If your income changed because you left a job, COBRA, Marketplace, and short-term cover have different clocks and trade-offs. See the companion guide on health insurance between jobs.
Disclosure: AcquireInsQuotes may earn a commission if you use a link on this site. AcquireInsQuotes is not an insurer and is not a licensed agent. This guide is consumer education only and does not promise approval, a named rate, or a named carrier outcome.
Sources
- HealthCare.gov, Modified Adjusted Gross Income (MAGI) glossary
- HealthCare.gov, What is included as income
- HealthCare.gov, Federal Poverty Level (FPL) glossary
- HealthCare.gov, How to report income and household changes
- HealthCare.gov, Reporting income, household, and other changes
- IRS, Questions and Answers on the Premium Tax Credit, FS-2025-10, December 23, 2025
- IRS, Instructions for Form 7206, Self-Employed Health Insurance Deduction
- HHS ASPE, Prior HHS Poverty Guidelines and Federal Register References
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