TAX BREAK FOR SELF EMPLOYED IN THE NEW JOBS BILL

As the debate over health care and health care costs continued to draw attention, it appeared as if the smallest of businesses, those who are self-employed, were being ignored. Most of the health care related tax breaks and credits have been focused on businesses with employees but those who are self-employed or primarily family owned have been left out. Until now.

Self-employed persons are finally getting a break. Under section 2042 of the Business Jobs Act of 2010 recently passed by Congress, those who are self-employed and pay their own health insurance premiums now get a break.

Currently, if you are self-employed, you can only deduct health insurance premiums from income before computing “regular” federal income tax; however, SE tax (self-employment tax), or Social Security and Medicare tax, is computed on the entire amount. So-called W-2 employees were treated differently.

That will now change. Persons who are self-employed will be able to deduct the cost of health insurance premiums from income before calculating SE tax. That results in a savings of nearly 15% over the cost of those premiums: Social Security tax is payable at a rate of 12.4% and Medicare tax is payable at a rate of 2.9% – a combined rate of 15.3%. However, keep in mind that the income cap for Social Security tax for 2010 is $106,800 (there is no cap for Medicare tax), so the total amount of your savings will vary based on your income. But it’s still savings.

Of course, there’s a catch. There’s always a catch. It’s only for 2010. But hey, in this economy, beggars cannot, apparently, be choosers. It’s a break and we’ll take it.