Law gives self-employed break on health costs

Tax expert says some taxpayers could save 12%-13% on premiums

The Small Business Jobs and Credit Act of 2010 signed into law last September provides a tax break for the self-employed on health care costs.

Self-employed workers who pay their own health insurance premiums can now deduct those costs before computing their self-employment taxes, which cover Social Security and Medicare.

“America’s small businesses applaud the U.S. Senate for extending these critical tax cuts,” said Kristie Arslan, executive director of the National Association for the Self-Employed. “Tax relief not only contributes to the success of small businesses but also promotes the long-term stability and growth of our economy. The small business community contributes nearly $1 trillion dollars each year to the economy, keeps Americans at work and off the unemployment rolls and continues to be the engine of economic growth. America’s small businesses and middle-class are counting on this economic relief.”

While the deduction for premiums paid for an owner subject to self-employment tax is not in itself new, using it to reduce the amount of income upon which self-employment tax is based is new. Also new and impacting the net benefit of the deduction is the reduction of part of the self-employment tax rate.

“There are a large number of moving parts to consider when determining the effective tax savings a self-employed taxpayer can expect to receive from this new tax law,” said Adam Holtzman, senior tax professional with Ghirardo CPA in Novato.


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