Elimination of Self-Employment Tax on Health Insurance
On September 27, President Obama signed the Small Business Jobs and Credit Act of 2010 (H.R.5297) into law, which among other things, eliminates the self-employment tax on health care for 2010.
In order to qualify for the deduction, small business owners must meet all of the following requirements:
- File an IRS Form 1040 Schedule C tax form - this includes sole proprietors, single member LLCs, and sole owner S-Corporations
- Pay self-employment taxes via IRS Form 1040 Schedule SE
- Pay for individual or family health coverage in 2010
This deduction is available on health costs paid out by self-employed business owners in 2010. To determine if they are eligible, small business owners are advised to work with a tax professional prior to the April 15, 2011 tax filing deadline.
Self-employed individuals are required to pay the employer and employee contribution to payroll taxes, which amounts to 15.3 percent on business income. To calculate the savings from this new tax deduction, simply add up the total 2010 health insurance costs and multiply that by 15.3 percent. The resulting amount will be the amount saved on self-employment taxes in 2011.
According to a report on individual health insurance released by America's Health Insurance Plans (AHIP), annual premiums averaged $2,985 for single coverage and $6,328 for family plans nationwide in mid-2009.
COSE has long advocated for the elimination of this unfair tax and will continue to advocate for permanent elimination beyond 2010. Contact advocacy@cose.org for additional information.