I may have missed an opportunity. I've been deliberately unplugged from anything related to my former job for these initial few weeks of FIRE. This morning I logged in to LinkedIn for the first time in a long while, and I found a two week old message from a consultant with whom I used to interact in the old job. He and his client wanted to talk to me about something related to a project we worked on together. I responded with my phone number and told him to give me a call if he is still interested. If I don't hear back from him, no biggie.
But the exchange prompted me to look into the potential impact of consulting income on my tax and health insurance situation. I have an ACA exchange plan, so I am curious about how an increase in income might impact the premium tax credit and cost sharing. Right now I'm in the sweet spot where I can get a good silver plan for very low cost. Here's what I discovered for a few different scenarios:
$4,000 gross from a one-off consulting gig
-660 self employment tax
-660 est. federal & state income tax
-575 partial loss of premium tax credit
$2,105 net gain
-3,100 extra deductible if either DW or I hit our individual deductible
-$995 net loss
-$1,000 extra OOP if either DW or I hit our individual out of pocket max
-$1,995 net loss
$10,000 gross from occasional consulting work
-1,500 self employment tax
-1,500 federal and state income tax
-1,516 partial loss of premium tax credit
$5,484 net gain
-4,800 extra deductible if either DW or I hit our individual deductible
$684 net gain
-1,650 extra OOP if either DW or I hit our individual out of pocket max
-$1,650 net loss
$20,000 gross from occasional consulting work
-3,000 self employment tax
-3,000 federal and state income tax
-3,041 partial loss of premium tax credit
$10,959 net gain
-4,800 extra deductible if either DW or I hit our individual deductible
$6,159 net gain
-1,650 extra OOP if either DW or I hit our individual out of pocket max
$4,509 net gain
Clearly it does not make sense to take on any paid work unless I think I can gross more than $10k/year, and really I'm not sure it's worth the effort unless I can get up to $20k or so. And note that this is my personal gross, not the actual billed amount, which would need to be higher to account for expenses and overhead. Expenses could be tacked on to the job price, but overhead would need to be accounted for in the billing rate.
So let's say I have a very reasonable 20% overhead built into my $100/hr billing rate. I would need to bill clients $24,000 (plus expenses) to gross $20k for me personally, which means I would need to work 240 hours a year, or 12 weeks at 20 hours a week. If I billed $75/hr, I would need to work 320 hours, or 16 weeks at 20 hours/week. All just to clear somewhere between $4,500 and $11,000, which works out to an effective after-tax rate of $14 to $19/hr. That's better than minimum wage, I guess, but it's hardly making me want to get out there and get back to work.
(Edit: the numbers above pertain to my situation in 2018, which is different from my situation in future years. I still had some job income in January, which I am using to max out mine and my wife's traditional IRA contributions. Therefore, any additional earnings from consulting can't be sheltered. In future years, up to $13k of gross consulting earnings could be sheltered in our IRAs, which would wipe out much of the state/federal income tax and would remove that $13k from our MAGI for ACA premium tax credit and cost sharing calculations. In this situation, the incentive would be to keep consulting earnings below $13k so that it doesn't impact PTC/OOP, and also doesn't take up any of the standard deduction/exemption space that I'm planning to use for Roth ladder conversions. In light of all this, I might consider doing some small freebies this year just for the networking opportunity so I will be positioned for paid work next year, if I determine that it is needed.)
Edit: these calculations are incorrect. See post #46 below.