How do you deal with the donut hole (especially if self-employed)?
July 15, 2022 2:53 PM Subscribe
I'm married with two kids. Both my partner and I are somewhat disabled in ways that are hard to prove, but we both work part-time. We were very low income for a long time and lucky to receive various social services that made that workable enough. Now, though (thanks in part to previous assistance on ask.metafilter) I have more employable skills and a much better part-time job, and this year for the first time I'm worried about making too much money.
In the past our annual income has been about $35,00. We have Medicaid, but we still spend a significant amount of money on out-of-pocket medical expenses that aren't covered. I'm looking at what it would mean if our family made around 55,000 or 60,000 instead.
It looks like what that would mean would be:
1) that we would pay about 10,000 in taxes (this is high because I'm technically self-employed. We've never had to pay taxes before, because we got a significant EITC that covered what we owed, which was also significantly less than this)
2) be ineligible for SNAP (we got about 10,000 this year after it was raised during the pandemic)
3) lose medicaid and have to pay for health insurance (another $4000?) PLUS have a hard time accessing the more expensive medical services that we need because the plans we could afford at all have deductibles that are close to another 10,000 that I can't imagine paying (and this would be the pro-rated plans based on income).
4) Also, my kids go to private school where they've always gotten significant subsidies, and I assume we would pay significantly more for that. I know, they've been lucky to be able to do that and it's not exactly considered a human right, but realistically it's another part of what makes the possibility of making more money look so expensive.
I would like to improve our circumstances, ideally be able to save for retirement, and preferably not require subsidized benefits...but it's looking very real to me that we might basically end up with the same amount of actual money, less ability to pay for school, and much worse health coverage.
How does anybody deal with this? How do self-employed people specifically deal with this? Am I missing something obvious?
In the past our annual income has been about $35,00. We have Medicaid, but we still spend a significant amount of money on out-of-pocket medical expenses that aren't covered. I'm looking at what it would mean if our family made around 55,000 or 60,000 instead.
It looks like what that would mean would be:
1) that we would pay about 10,000 in taxes (this is high because I'm technically self-employed. We've never had to pay taxes before, because we got a significant EITC that covered what we owed, which was also significantly less than this)
2) be ineligible for SNAP (we got about 10,000 this year after it was raised during the pandemic)
3) lose medicaid and have to pay for health insurance (another $4000?) PLUS have a hard time accessing the more expensive medical services that we need because the plans we could afford at all have deductibles that are close to another 10,000 that I can't imagine paying (and this would be the pro-rated plans based on income).
4) Also, my kids go to private school where they've always gotten significant subsidies, and I assume we would pay significantly more for that. I know, they've been lucky to be able to do that and it's not exactly considered a human right, but realistically it's another part of what makes the possibility of making more money look so expensive.
I would like to improve our circumstances, ideally be able to save for retirement, and preferably not require subsidized benefits...but it's looking very real to me that we might basically end up with the same amount of actual money, less ability to pay for school, and much worse health coverage.
How does anybody deal with this? How do self-employed people specifically deal with this? Am I missing something obvious?
My experience as a case manager working with people in need of expensive medical support, it was almost always in their interest to keep their income low enough to qualify. The gap is at least as large as you describe, and once you have lost services, it is difficult to get them back. Unless you can go from 35k to 75k+, you will experience possibly life threatening loss of services and quality of life. In any other country with national healthcare, this would never be the case, but, in the US, the answer is probably - don't earn the extra money.
posted by hworth at 4:37 PM on July 15, 2022 [11 favorites]
posted by hworth at 4:37 PM on July 15, 2022 [11 favorites]
Congratulations on your financial success. I would bet you'll come out ahead if your household income goes up by ~$20,000 or more. Generally, public benefits are designed to phase out in a way that means that you aren't made worse off by earning more money, though sometimes that fails. Still, it's worth thinking about how you will make it work. The private school financial aid is a bit of a wild card, but many schools offer financial aid even to people with middle class incomes. I would talk to the school about how this calculation is done. As hworth points out, people with exceptionally high medical costs may be an exception to the rule that higher income is generally good.
Is your location in your profile up to date? Depending on what state you live in, ACA benefits may blunt the blow of losing Medicaid eligibility. (Your children may also be eligible for CHIP.) Take a look at the savings calculator here, e.g.: https://pennie.com/ .
posted by reren at 4:43 PM on July 15, 2022 [2 favorites]
Is your location in your profile up to date? Depending on what state you live in, ACA benefits may blunt the blow of losing Medicaid eligibility. (Your children may also be eligible for CHIP.) Take a look at the savings calculator here, e.g.: https://pennie.com/ .
posted by reren at 4:43 PM on July 15, 2022 [2 favorites]
Definitely, consult a CPA about your self-employed business expenses; maybe itemizing your family's medical expenses would help. Talk with the private school (or schools) now to better understand the tuition structure and how current subsidies change with income increases. Check eligibility for academic or other scholarships, or paying a reduced rate if you have more than one kid in the same school.
posted by Iris Gambol at 4:46 PM on July 15, 2022
posted by Iris Gambol at 4:46 PM on July 15, 2022
Do you get your medical care from a hospital? Have you looked into their financial assistance program? My hospital waives all fees for people below 200% of the poverty line (and reduces it above that, just doesn’t waive entirely), which for a family of four is $55k. You can qualify even if you have insurance if your deductible is high or you have a lot of medical expenses. But you have to apply for it and they don’t advertise it well. Google your hospital’s name plus “financial assistance” or “charity care.” It could make a high deductible a moot point (unless most of your expenses are in prescriptions).
Also, have you looked into deducting your medical expenses from your taxes? I’ve never had enough for it to be worthwhile (due to the aforementioned financial aid program) but it could bring your tax bill down if you do pay for a lot out of pocket.
posted by brook horse at 4:47 PM on July 15, 2022 [4 favorites]
Also, have you looked into deducting your medical expenses from your taxes? I’ve never had enough for it to be worthwhile (due to the aforementioned financial aid program) but it could bring your tax bill down if you do pay for a lot out of pocket.
posted by brook horse at 4:47 PM on July 15, 2022 [4 favorites]
You're "technically" self-employed, sounds like you need to maybe take that a little more seriously and go talk to an accountant. They would be able to walk you through strategies for all this, in detail. You obviously have a lot of important things on the line, so it's worth the few hundred bucks to have someone set you on the right path.
Pretty much all benefits (and the income tax) are based on adjusted household income and being self employed or a gig worker gives you lots of options for reducing that that's not available to most people with waged work.
There are much bigger, better ways to save your money that are tax advantaged other than just itemizing your expenses. The SEP-IRA limit for couples is $11k/year and that's just the personal limit, you could also make contributions as your own employer (up to 20% of your 1099 revenue, if I remember right). There's 529 education accounts (I think it varies by state but the deduction is around $20k/year/couple?). There's lots of ways to make big dents in your income that let you keep the money and build wealth for yourself, same as people with "regular" jobs have those things paid for (and deducted by) their employers.
An accountant would be able to help you structure contributions and estimated taxes as your revenue increases to keep your income in the same tax bracket.
posted by bradbane at 6:49 PM on July 15, 2022 [3 favorites]
Pretty much all benefits (and the income tax) are based on adjusted household income and being self employed or a gig worker gives you lots of options for reducing that that's not available to most people with waged work.
There are much bigger, better ways to save your money that are tax advantaged other than just itemizing your expenses. The SEP-IRA limit for couples is $11k/year and that's just the personal limit, you could also make contributions as your own employer (up to 20% of your 1099 revenue, if I remember right). There's 529 education accounts (I think it varies by state but the deduction is around $20k/year/couple?). There's lots of ways to make big dents in your income that let you keep the money and build wealth for yourself, same as people with "regular" jobs have those things paid for (and deducted by) their employers.
An accountant would be able to help you structure contributions and estimated taxes as your revenue increases to keep your income in the same tax bracket.
posted by bradbane at 6:49 PM on July 15, 2022 [3 favorites]
Please please please listen to a social services case worker. If I were in your position I would under no circumstances go over the line for any assistance program! It took me close to 18 years to get back to being as financially stable as I was when I qualified for government services. Being disabled makes making money a two edged sword and losing good insurance (which you have right now) can be a disaster. Especially if it means you need to start paying for a high deductible plan out of pocket. I would do everything in my power to get under that line. A CPA might be able to help you incorporate so that the profits are separate from your income in a way that helps, but like. You need to prioritize getting that advice ASAP because you need to know if you have to drastically cut your income NOW so you can make things even by the end of the year.
The donut hole is real and the cause of so very much suffering. Most people need to triple or quadruple their income to make up the difference. Btw - it was smart to ask this anonymously. You are supposed to do everything you can to make money and the government can be assholes about it.
Good luck, and I’m terribly sorry that things are set up this way. It’s awful.
posted by Bottlecap at 8:39 PM on July 15, 2022 [11 favorites]
The donut hole is real and the cause of so very much suffering. Most people need to triple or quadruple their income to make up the difference. Btw - it was smart to ask this anonymously. You are supposed to do everything you can to make money and the government can be assholes about it.
Good luck, and I’m terribly sorry that things are set up this way. It’s awful.
posted by Bottlecap at 8:39 PM on July 15, 2022 [11 favorites]
The thing is (also) that you can calculate probably almost all of this right now. You know what services and subsidies you have, and what those would be replaced with. You can find out what your expenses would be on the open market and what the income limits are for each of the programs and throw it into a spreadsheet or list them in columns on a sheet of paper. Moreover, and just so it gets said, maybe you could embark on a project to make more money. If you're self-employed, technically or not, if you're getting a 1099, you could maybe raise your rate? Of course I don't know your specific situation so it may easily be more complicated than that, but my point is that as you've been able to make more money of late, you might not have to stop doing that and figuring out where the boundaries of your current situation are can allow a plan to come together.
As far as advice goes, you might not need a full CPA accountant and can talk to a tax preparer, who in my experience have a lot of knowledge in the basic structure of your kinds of situations. But yeah, if you're a 1099 worker, there's probably a lot you can do to reduce the amount of taxes you pay (gas, equipment, internet connection, and so on).
posted by rhizome at 6:29 PM on July 16, 2022 [1 favorite]
As far as advice goes, you might not need a full CPA accountant and can talk to a tax preparer, who in my experience have a lot of knowledge in the basic structure of your kinds of situations. But yeah, if you're a 1099 worker, there's probably a lot you can do to reduce the amount of taxes you pay (gas, equipment, internet connection, and so on).
posted by rhizome at 6:29 PM on July 16, 2022 [1 favorite]
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