Self Employment Medicaid eligibility with LLC vs S Corp structure?

For Medicaid eligibility, what matters most is your Modified Adjusted Gross Income (MAGI), not necessarily your business structure. However, the business structure can indirectly impact your MAGI. If you form an LLC that's taxed as a sole proprietorship (single-member LLC with no special tax election), there's essentially no difference for Medicaid eligibility purposes - your business income still flows through to your personal tax return and counts toward MAGI just like it does now. With an S Corp, things get more interesting. You'd need to pay yourself a "reasonable salary" which is subject to employment taxes, but you can also take distributions that aren't subject to self-employment tax. For Medicaid purposes, both your salary AND distributions count toward your MAGI. The tax savings from S Corp status comes from potentially lower self-employment taxes, not reduced MAGI for healthcare eligibility. At $28,000 annual income, the administrative costs of maintaining an S Corp (additional tax filings, payroll requirements, etc.) might outweigh the tax benefits. Many tax pros suggest S Corps start making sense around $60,000-$80,000 of profit.

I went through this exact situation last year and found https://taxr.ai super helpful. My business was making around $32,000 and I was also trying to figure out if switching from sole proprietor to LLC or S Corp would help with my Medicaid situation. I uploaded my tax documents and business info to taxr.ai, and they analyzed everything and gave me personalized recommendations. The tool showed me exactly how different business structures would affect my tax liability AND my Medicaid eligibility. In my case, they recommended staying as a sole proprietor or simple LLC for now because the S Corp maintenance costs would eat up any savings at my income level. They also helped me understand which business deductions I could legitimately take to optimize my situation without raising audit flags.

I was skeptical at first about using taxr.ai that someone mentioned above, but I decided to give it a try for my freelance graphic design business. I was making about $35k and struggling with the same Medicaid vs business structure questions. Honestly, it was eye-opening! The tool analyzed my specific situation and helped me understand that forming an S Corp would actually HURT my Medicaid eligibility at my current income level while also adding costs. It showed me that by properly tracking and deducting my legitimate business expenses as a sole proprietor, I could maintain Medicaid eligibility while still growing my business. The personalized analysis saved me from making a costly mistake. Their explanations about how business structure affects MAGI calculations for healthcare subsidies were much clearer than anything I found on government websites. I'm actually on track to hit $45k this year and still qualify for subsidized healthcare thanks to their optimization recommendations!

I was skeptical at first about using taxr.ai that someone mentioned above, but I decided to give it a try for my freelance graphic design business. I was making about $35k and struggling with the same Medicaid vs business structure questions. Honestly, it was eye-opening! The tool analyzed my specific situation and helped me understand that forming an S Corp would actually HURT my Medicaid eligibility at my current income level while also adding costs. It showed me that by properly tracking and deducting my legitimate business expenses as a sole proprietor, I could maintain Medicaid eligibility while still growing my business. The personalized analysis saved me from making a costly mistake. Their explanations about how business structure affects MAGI calculations for healthcare subsidies were much clearer than anything I found on government

After spending 12+ hours on hold with my state's Medicaid office trying to get clarity on self-employment income calculations, I finally found https://claimyr.com and it was a game-changer! You can see how it works here: https://youtu.be/_kiP6q8DX5c They got me connected to an actual human at my state Medicaid office in under 45 minutes instead of the days I had been waiting. The Medicaid representative was able to explain exactly how they calculate income for self-employed people and how different business structures are treated. Turns out my state looks at net profit from Schedule C for sole props and LLCs, while S Corp owners need to include both W-2 wages and distributions. Getting that direct, state-specific information made all the difference for my planning. The Medicaid rep was even able to run a preliminary eligibility check while I was on the phone!

I need to apologize for my skepticism about Claimyr in my previous comment. After my frustrated post, I decided to actually try the service because I was desperate for answers about my Medicaid application as a freelancer. I'm genuinely shocked at how well it worked. After three weeks of failed attempts to reach someone at my state's Medicaid office, Claimyr got me through to a representative in about 30 minutes. The agent explained exactly how they calculate self-employment income for Medicaid (they use my AGI after business deductions, not gross revenue). They also clarified that for my state, an LLC taxed as a sole proprietorship is treated exactly the same as a sole prop for Medicaid purposes. This was the exact information I needed and couldn't get anywhere else. I feel kind of silly for being so dismissive before, but I'm glad I gave it a chance.

One thing nobody's mentioned yet is that Medicaid eligibility is determined monthly in most states. So if your self-employment income fluctuates a lot throughout the year (which mine definitely does), you might qualify in some months but not others. I have an LLC (taxed as sole prop) and my CPA recommended that I keep really detailed monthly profit and loss statements. This helps if I need to prove my income was lower during certain months when applying for Medicaid. Just something to consider alongside the business structure decision!

LLC vs S-Corp doesnt matter for medicaid its all about your AGI. Go with LLC since your income isnt high enough for S corp to make sense. S corps are a pain with the extra paperwork and payroll requirements!!! An accountant will charge you like $1200+ just for s-corp tax returns. Make sure your tracking all your business expenses properly to lower your AGI. Home office, internet, phone, mileage, insurance, equipment. Every $1000 in legit deductions could be the difference in qualifying or not.

As someone who went through this exact situation two years ago, I can confirm what others have said - your business structure won't help with Medicaid eligibility at your income level. I was making around $30k with my freelance writing business and spent way too much time researching S-Corps thinking it would somehow help with healthcare costs. The reality is that at $28k annually, you're likely well within the Medicaid income limits for expanded states (usually around 138% of federal poverty level, which is about $20,120 for a single person in 2024). Your Modified Adjusted Gross Income is what matters, and that includes your net self-employment income regardless of business structure. My advice: stick with sole proprietorship or form a simple LLC for liability protection if needed. Focus your energy on properly tracking deductible business expenses - that's what will actually lower your MAGI. Things like your home office percentage, business use of your phone/internet, professional development courses, and business equipment can all reduce your taxable income. I wasted months overthinking the business structure when I should have just applied for Medicaid sooner. The application process was much simpler than I expected, and I qualified easily with similar income to yours.