Not everyone is breathing a sigh of relief now that tax day has passed. For 18 million self-employed entrepreneurs, April 15 served as yet another reminder they must contend not only with dramatically rising health premiums, but also with a U.S. tax system that singles out the self-employed as the only group to pay an extra tax on those premiums.
As it stands now, all businessesexcept sole proprietorscan deduct health premiums as a business expense and avoid paying Social Security and Medicare taxes on those expenses. But sole proprietorsyour plumber, graphic designer, deli owner and dry cleanermust pay a 15.3 percent tax on those costs.
Two members of Congress heard these frustrations. Representatives Melissa Hart (R-Pa.) and Donald Manzullo (R-Ill.) have introduced a bill that would abolish the tax targeting the self-employed. This will help curb the impact of skyrocketing health premiums for this important segment of the business community, one that produces more than three-quarters of a trillion dollars in annual economic activity. The Equity for Our Nations Self-Employed Act aims to level the playing field for sole proprietors by allowing them to deduct the cost of health insurance premiums as a normal business expense when calculating their federal self-employment tax.
Although of little help to sole proprietors who have just filed their 2005 returns, this legislation offers hope for 27 million working uninsured who come from families in which the head of the household is self-employed or working for a small business. The bill recognizes that more than 50 percent of micro-businesses with fewer than 10 employees cannot offer health coverage because cost is an insurmountable barrier. And it offers a simple way to save self-employed business owners more than 15 percent on their yearly premium payments.
If Representatives Hart and Manzullo succeed in helping the millions of struggling Americans by restoring fairness to todays tax code, perhaps next year sole proprietors will finally be able to afford health insurance for themselves and their families. Now thats cause for a sigh of relief.
Robert Hughes is a self-employed CPA and president of the National Association for the Self-Employed.
From the May 17-23, 2006, issue