September 30, 2010
Even more health care relief for the self-employed
[Flickr photo by shimelle]
As I mentioned in a recent post, starting this week, freelancers and other "businesses of one" in Washington state will be able to qualify for group health insurance plans.
In addition, last week marked the six-month anniversary of the signing of the new federal health care bill, ushering in a handful of welcome changes to U.S. health plans for employees and self-employed alike. (Goodbye, lifetime coverage limits and the ability of insurance companies to drop customers who are sick or to deny coverage to kids with pre-existing conditions! Hello, free mammograms, free cholesterol screenings, and free immunizations for kids!)
And this week, President Obama signed the Small Business Jobs Act, which among other small business tax breaks, gives freelancers, small business owners, and other self-employed folks a deduction for the cost of their health insurance -- and that of their family members -- on their 2010 self-employment taxes.
Earlier this week, the New York Times' Bucks blog offered a helpful breakdown of how this tax benefit works. According to the Times, "Self-employed workers who pay their own health insurance premiums have always been able to deduct those costs, along with premiums for family members, when calculating their federal income taxes. The new law allows them to also deduct those costs before computing their self-employment taxes, also known as payroll taxes, which cover Social Security and Medicare."
For those not in the know, freelancers, sole proprietors, and other small business owners must pay a self-employment tax of 15.3 percent; this is how we self-employed pay into the Social Security and Medicare systems. Employees, on the other hand, only pay half the 15.3 percent; their employers cover the other half.
The Times illustrated the potential savings this new tax break could have on self-employed workers like so: "[C]onsider a self-employed taxpayer who earns $100,000 annually and pays $10,000 for her family's premiums. Last year, she would have owed roughly $15,000 in self-employment taxes. This year, thanks to the new law, she'll pay about $13,500 -- a $1,500 savings."
So how much does the average self-employed worker stand to save on their 2010 tax return as a result of this tax break? "The National Association for the Self-Employed said it expected that the new provision would save self-employed business owners anywhere from $456 to $968, on average," the New York Times reported.
I don't know about the other self-employed, self-insured folks in the crowd, but I'm greatly looking forward to claiming this deduction on my 2010 tax return. Sure, it's a one-time-only tax break, and sure it won't come close to covering all your health care costs for the year. But $456 to $968 is still $456 to $968. If you're not sure how to claim it, talk to your accountant or tax preparer for details.
Karen Burns is the author of The Amazing Adventures of Working Girl, a career guide based on her 59 jobs over 40 years in 22 cities.
Lisa Quast is a certified career coach, mentor, business consultant, former corporate executive and author based in the Seattle area.
Randy Woods writes about job-search tools, networking techniques and other tips to help you land your dream job.
Matt Youngquist is the president of Career Horizons, a career counseling firm.
Natalie Singer is a Seattle writer, editor and small-business owner.
Michelle Goodman is the author of "My So-Called Freelance Life" and "The Anti 9-to-5 Guide."
Paul Anderson helps professionals in transition find their desired employment.
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