Understanding 1099 Income, Health Insurance Credits, and the Importance of Tax Planning

If you’re a 1099 income and independent contractor, it’s not necessarily a bad thing — but it does require a different approach when it comes to taxes, insurance, and financial planning. Many people are used to being W-2 employees, so it’s easy to get confused. Let’s break down the differences and how it ties directly into your health insurance options and potential savings:

W-2 Employment:

• Your employer pays half of your Social Security and Medicare taxes.

• Your taxes (federal, Social Security, Medicare, and state if applicable) are automatically withheld from your paycheck.

• Your W-2 income is your gross income and it’s relatively fixed — what you see on paper is what counts toward things like insurance eligibility and credits.

1099 Self-Employment:

• You are responsible for paying both the employer and employee portions of Social Security and Medicare taxes (commonly called “self-employment tax”).

• No taxes are automatically deducted — you must set money aside and typically pay quarterly estimated taxes.

• However, you can deduct business expenses to lower your taxable income.

• Examples of deductible expenses include mileage, home office use, equipment, supplies, and more.

Real Example:

Suppose you’re a 1099 contractor earning $45,000 a year.

• You drive 10,000 miles for work-related activities.

• The IRS allows a standard mileage deduction (currently $0.69 per mile for 2025), so you could deduct $6,900 from your income.

• After factoring in other business expenses (e.g., supplies, office equipment), your adjusted taxable income could be much lower — say around $30,000 instead of $45,000.

Why This Matters for Health Insurance:

• Health insurance credits through the Marketplace (Obamacare) are based on your adjusted income, not your gross income.

• If your adjusted income drops (because of your legitimate business deductions), you could qualify for larger insurance subsidies or lower premiums.

• In short: 1099 income, properly managed, could make your health insurance much more affordable.

Important:

• Navigating deductions, credits, and insurance eligibility can be complicated.

• Work with a qualified tax professional who understands self-employment rules.

• They can help you maximize your deductions, lower your tax burden, and properly estimate your income for health insurance purposes.

Being a 1099 worker gives you flexibility and major tax advantages if you plan correctly — especially when it comes to saving on health insurance. But you need to document your expenses and work closely with a tax expert to get the full benefit.