NASE News

House Members Work For Tax Fairness For Self-Employed

Bill Would End FICA Tax On Health Insurance Premiums, Reducing Cost Of Health Care for Self-Employed

Washington, D.C., March 18, 2009 -- Recently introduced federal legislation would level the playing field for 21 million self-employed Americans by ending a significant double-digit disparity in taxes paid on health insurance that has contributed to the growing health care crisis. The Equity for Our Nation's Self-Employed Act (H.R. 1470), introduced in the House of Representatives by Reps. Wally Herger (R-CA), Ron Kind (D-WI), Suzanne M. Kosmas (D-Fla.) and David G. Reichert (R-WA) would eliminate an inequity in the tax code that inhibits the self-employed from receiving a full deduction for health insurance costs.

"We ought to be encouraging sole proprietors, not penalizing them. Yet the tax code currently does just that," said R. Michael Beene, Senior Health Policy Expert and General Counsel for the NASE. "This bill puts the self-employed on equal footing with other American businesses, addresses an area that has too many uninsured individuals and families and rights a wrong at a time when we most need it. On behalf of the NASE and its 200,000 members we offer our full support."

In addition to leveling the playing field for our nation's smallest businesses, this legislation would assist in making health care more affordable for millions of self-employed Americans who currently make up a substantial number of the working uninsured. Today, more than 60 percent of the 47 million uninsured Americans are from families working for a small business or headed by a self-employed individual. In a 2008 NASE study, more than 65% of micro-businesses cite cost as the single most significant barrier to offering health insurance to employees.

Payment of Self-Employment Tax on Premiums

The tax code technicality resulting in the health-care cost inequality lies in the payment of self-employment tax on health insurance premiums. While corporations are able to deduct health insurance premiums as a business expense and to forego FICA (Social Security and Medicare) taxes on these expenses, sole proprietors are unable to deduct premiums and are required to pay an additional 15.3 percent self-employment tax on these costs.

Studies have indicated that on average in the United States a self-employed individual pays $12,106 annually in health insurance premiums for family coverage. Since owners are unable to deduct their premiums as a business expense, as larger businesses do, they have a higher self-employment (FICA) tax liability. In this case a sole proprietor would be paying an additional $1,852.22 (15.3 percent) in taxes.

NASE Member John Rutledge is from Ruther Glen, Virginia and owns a real estate title research company. He pays an additional $1,652.00 in taxes annually on his health costs and can think of many other uses for the money. He remarks, "I could hire an office assistant to assist with some of the day-to-day administrative functions of the business or an IT professional to guide our expansion. We could easily double our outcome with this help."