NASE Blogs

Self-Employed: Take An SE Tax Deduction For Health Insurance Costs

Wednesday, February 09, 2011

Posted by Kristin Oberlander - For the 2010 tax year, self-employed business owners can have one more deduction to claim – their health insurance costs. The Small Business Jobs and Credit Act, passed last fall, provides an important tax break for the over 23 million self-employed Americans by allowing them to deduct health insurance costs in determining the Self Employment Tax. These businesses represent 78 percent of all small businesses in the U.S., according to the NASE.

To qualify for this deduction, self-employed business owners must meet the following three criteria:

  • File a Schedule C or Schedule E with net earnings from self employment
  • File a Schedule SE and pay self employment tax
  • Pay health insurance costs during the year

“This is a major step forward in addressing the single most important factor facing the self employed business owner when it comes to health insurance, and that is affordability,” says Keith Hall, the NASE’s National Tax Advisor. “By allowing health insurance costs to be included as a deduction in the calculation for Self Employment Tax, most small-business owners can save as much as 15% on the cost of health coverage right off the top.”

To calculate estimated savings, simply add up total 2010 health insurance costs and multiply by 15 percent. If, however, income is above the maximum wage limit subject to self employment tax, currently $106,800, then the total percentage savings will be a little different.

Until now, the self-employed couldn’t get the same tax benefit for health insurance expenses that other companies enjoy. Now, the self-employed can take a one-year tax deduction for these costs in determining their payroll tax (self-employment tax). Unfortunately, this deduction is only available for the 2010 tax year.
 
“We should all take the time to let our Congressional leaders know that this provision should be extended beyond just this year,” advised Hall. “Other entity forms such as corporations and big businesses get this same type of tax benefit every year, and it is only fair that small-business owners should have the same opportunity.”

Visit www.NASE.org to find out how to contact your representatives in Washington, D.C. and let them know that you support this provision.

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