Mike’s Income Goes Up

At first, Mike found that working for himself was hard. He had trouble getting freelance writing jobs and staying motivated to look for work. Eventually, he took some jobs doing boring technical writing, which helped cover his bills during his first year as a freelance writer. His guess about his income had been pretty spot on: he ended up making just a bit over $15,000 that year.

As time went on, though, he started making some baseball writing connections. Back in the old days, hustling up a job meant running around from office to office or ballpark to ballpark. But now Mike made his connections online by participating in baseball blogs, using his free time to write about stuff he really liked. During baseball season, Mike was able to watch multiple games on TV each day and he wrote about them for free on a small blog. Sometimes he just commented on the articles other people had written, often impressing the authors with his quick wit and cogent analysis.

By mid-season, he was becoming pretty well known on all of the Minnesota Twins blog sites and his opportunity came up: one of the major blog writers was going on a maternity leave and they needed a substitute writer for the rest of the season. Mike submitted a sample article and was given a shot at a weekly column.

This was way more exciting than covering high school lacrosse, and he dedicated his full energies to his writing, producing better output than he ever had. Things went great, and by the time the season was over, he had become a real part of the local baseball writing scene. He didn’t want to have a full-time job at a single spot, though, because he wanted to be in control of his schedule and be able to work from home as a way of dealing with his disability, which little by little was limiting his physical strength. Instead, he used his new connections to get a series of freelance writing gigs and by the time spring training had started up the following February, Mike had a steady income writing about professional baseball. He didn’t make quite as much money as he did back at the paper, but he liked his work way more and the roughly $3,000 per month he was making was pretty good as far as he was concerned. He even opened up an Individual Retirement Account (IRA) and started putting some money into it each month.

When his income started going up, he realized that he might not qualify for Medical Assistance (MA) anymore. He remembered that he was supposed to go back to MNsure and update his information anytime his situation changed. He was a little confused about how to do this, so he decided to call MNsure over the phone at 1-855-3-MNSURE (1-855-366-7873). They explained that he just had to log into the website and that when he updated his income information, MNsure would let him know about any changes to his insurance.

“If your income has gone up so much that you don’t qualify for MA anymore, MNsure will automatically notify you and help you enroll in an alternative. If your income were between 138% and 200% of the Federal Poverty Guidelines (FPG), you’d probably qualify for low-cost health coverage through MinnesotaCare. However, now that you’re making $3,000 a month, you are over 200% of FPG for a household with just one occupant, so you’ll instead have to sign up for an individual insurance plan from a private company.”

Mike thought about this and asked the MNsure phone representative if this meant he’d have to pay a lot for his insurance.

“Probably not,” explained the MNsure support person. “ I think you may qualify for tax subsidies for your individual insurance plan. That basically means that the government will help you pay the monthly premium if it’s too expensive. For example, if you get an average silver level plan, you’d only have to pay 8.5% of your income for the premium. If your plan has a higher premium, the government would pay the rest. So in your case, that means the most you’d pay for a plan would be $255 per month (8.5% of the $3,000 you make each month). You can get a more exact estimate of how much you might have to pay by using MNsure's Shop and Compare tool.”

This sounded like an affordable amount for Mike, now that he was making more money. He went ahead and updated his information on MNsure. When he did that, he got a message that because his income had gone up, he would no longer qualify for MA. Losing MA meant that he could sign up for a private insurance plan, even though it wasn’t the normal open enrollment period. He looked at the silver plans and some of them were actually cheaper than what he had been told over the phone. He considered them, but in the end decided to get a platinum level plan. A platinum level plan meant he’d have to pay a higher premium each month (more than $400 for the plan he chose), but with his multiple sclerosis, he wanted a plan that would have lower copayments and no deductible. Since he knew he’d need to see the doctor pretty often, the platinum plan would actually be cheaper for him in the end due to the lower out-of-pocket expenses.

There was one other thing Mike had learned about now that he was making more money with his self-employment: taxes. At first, Mike didn’t know much about filing self-employment taxes, so he asked another freelance baseball writer he met, Suzanne. She explained that as a self-employed person, Mike had to diligently pay his income and Social Security taxes.

“So how do I do that?” asked Mike.

Suzanne replied, “I don’t really know the details of it; I’ve got an accountant who handles it for me.” Suzanne then put Mike in contact with her accountant, Dana, who provided low-cost accounting services for people who were self-employed and had low to moderate income. He wasn’t very happy about having to pay taxes every 3 months, because when he worked at the paper, he only filed taxes once per year.

He mentioned this to Dana, who said, “Actually, when you worked at the newspaper, you were paying taxes all year, it’s just that it was automatic. Each time you got paid, some of your pay was sent to the government automatically. Your income taxes got sent to the Internal Revenue Service (IRS) and your Social Security and Medicare taxes were sent to the Social Security Administration (SSA). That’s why if you look at your old pay stubs, at the top you’ll see the full amount of your paycheck, which is called your gross income, while the actual direct deposits to your bank account were a fair amount smaller.”

Mike took a moment to think about this and then asked, “So what you’re saying is that when I worked for another company, every time I got paid, some of my money went to taxes. Now that I’m working for myself, I just have to pay those same taxes once every three months? What if I don’t want to pay those taxes until the end of the year?”

Dana explained that it was important to pay taxes on time to avoid problems with the IRS. She also pointed out that the Social Security and Medicare taxes were especially important, because each year he worked, he could get up to 4 Social Security work credits. “You have to keep getting Social Security work credits to collect Social Security Disability Insurance (SSDI) and get Medicare health coverage if your disability ever gets worse and you can’t work anymore. You also need work credits to get Social Security benefits when you retire. And, the more you earn and pay in Social Security taxes, the bigger your Social Security checks will be when you get them. So, paying these taxes is really an investment in your future.”

“Wow,” said Mike. “That’s a really good point and it’s good to think about taxes that way. I’m really happy to know that the more I work and earn, the more support I’ll get from Social Security when I need it.”

After that, Mike continued his freelance work and gave Dana paperwork every 3 months about his income, so that his taxes could get filed correctly.