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Washington Watch - February 9, 2011

Wednesday, February 09, 2011

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

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 National Association for the Self-Employed (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.

Tell Us Your Story About The Deduction On Health Insurance Costs

The NASE realizes that the most important aspect of advocating on behalf of the self-employed is listening to true-life experiences. This week, we are particularly interested in how the topic above on the 2010 deduction for health insurance costs will affect your business. Simply multiply what you currently pay for health insurance by 15.3% (.153) and that's how much money you'll save in taxes this year. What will you do with that money?

Email the Washington Watch Editor, Kristin, at koberlander@naseadmin.org to tell us. With your permission, we'll share your story with the media to show them just how important it is to get this provision extended beyond the 2010 tax year.

NASE Applauds U.S. Senate For 1099 Repeal

Kristie Arslan, Executive Director of the National Association for the Self-Employed (NASE), released the following statement after the U.S. Senate voted to repeal the 1099 reporting requirement, which was part of the health care reform package passed last year:
“Small business owners nationwide applaud the U.S. Senate for voting to repeal an onerous provision of the health care reform law,” said Arslan. “There is no question that expanding the IRS Form 1099 reporting requirement would have placed an undue burden on small business owners, including the self-employed and micro-businesses. Adding to small businesses’ regulatory reporting burdens actively prevents these businesses from thriving and is a barrier to entry for new entrepreneurs. We encourage the House to follow suit and hope this signals a new trend to improve the business climate for the engine of our economy – small business.”

President Obama’s State of the Union reference to improving the health care reform law :


“Now, I’ve heard rumors that a few of you have some concerns about the new health care law. So let me be the first to say that anything can be improved. If you have ideas about how to improve this law by making care better or more affordable, I am eager to work with you. We can start right now by correcting a flaw in the legislation that has placed an unnecessary bookkeeping burden on small businesses.”

Washington Watch Online

Visit NASE Advocacy to view archived editions of Washington Watch. While you’re there, read the latest updates from the Washington, D.C. office, write your Congressperson, and find out how you can join the fight for micro-business.