Bill to Lower Health Costs for Self-Employed

March 8, 2011

Having been a long-standing priority, NSBA applauds the introduction of the Equity for Our Nation’s Self-Employed Act of 2011 (H.R. 880), legislation that would end a significant inequity within the tax code that penalizes self-employed Americans and makes it increasingly difficult to afford quality health coverage.

Introduced on March 2, by Reps. Wally Herger (R-Calif.) and Ron Kind (D-Wis.), the bill permanently allows sole proprietors to deduct the cost of health insurance premiums as a normal business expense when calculating their federal self-employment taxes. Under current law, all business entities except sole proprietors can deduct their health insurance premiums as a business expense and forego FICA (Social Security and Medicare) taxes on these expenses. This leaves filers of Schedule C and Schedule E tax forms as the only businesses paying a 15.3 percent tax on these costs. The millions of self-employed in dividuals in the U.S. are the only segment of the business population that pays this extra tax on health insurance.

Last year Congress passed legislation allowing the self-employed to fully deduct their health coverage costs from their 2010 taxes. This provides an important tax break for the over 23 million self-employed Americans that represent the overwhelming majority of small businesses in the U.S. It is estimated that the one-year tax deduction on health costs for payroll tax purposes will save self-employed business owners anywhere from $450 to nearly $1000 on their 2010 tax returns.

This deduction only applies to the 2010 tax year and without action the self-employed can expect to see their taxes go up by an average of 15 percent. The Herger-Kind legislation would permanently eliminate this inequality in our tax code and level the playing field for small businesses.

In these times of spiraling health care costs, NSBA applauds these lawmakers’ efforts to reduce the cost of health care for the self-employed. Lowering these costs will help level the playing field for these businesses, helping to ensure that they can afford insurance and freeing up money that can be used to help their businesses succeed.

H.R. 880 has been referred to the House Ways and Means Committee. NSBA is working to ensure passage of this bill as it will have a positive impact on the business community and is a common sense way to bring the cost of health care within the reach of many uninsured individuals.