22 Advocacy News
Could This Be The End Of
Self-Employed Tax Disparity?
True or False? As a self-employed business owner
you pay more taxes than any other business.
True or False? If you’re self-employed and purchase
health insurance, you receive none of the tax
benefits that employees or other business owners
get when they obtain health insurance.
Unfortunately, the answer to both of the above
questions is true.
If you operate your business as a sole-proprietor and
you purchase health coverage, you aren’t able to pay
for that coverage pre-tax, as employees working for
other business entities get to do. You’re also unable
to take a business deduction on your taxes for these
health care costs, a deduction that all other business
entities receive.
And because you’re unable to take a business
deduction for your health insurance costs, you pay
more in payroll taxes, called self-employment taxes
for sole proprietors, than any other business.
I wouldn’t be surprised if your reaction to this
information was shock followed by frustration
and anger at this unfair disadvantage you face as
a self-employed entrepreneur. However, I’m here
to tell you that change is on the horizon, thanks
to the NASE.
And the best part is that the NASE is not alone
in the fight.
Small-business organizations from across the
country joined together to highlight the hidden
disparity in the tax code in meetings with members
of Congress. You can see a complete list of all the
associations and chambers of commerce that form
the Coalition Supporting Equity for our Nation’s
Self-Employed at www.setaxequity.org. Together,
we were loud enough and strong enough to help
Those who file taxes as sole proprietors
are the only people – and the only
business structure – that are subjected
to the extra tax on health insurance.
Self-Employed January/February 2008
lawmakers push this issue into the spotlight
and offer their support to the cause.
The result was the introduction of the Equity
for Our Nation’s Self-Employed Act late last year.
Moving Toward Fair Taxation
Everyone owes their fair share of taxes to Uncle
Sam. The inequity that the NASE is fighting is that
those who file taxes as sole proprietors are the only
people – and the only business structure – that are
subjected to the extra tax on health insurance.
Legislation in the past has worked to narrow the tax
disparity between sole proprietors and big business,
but it has not gone far enough.
A regulation enacted in 2003 allows deductibility
of health insurance premiums when calculating
income tax, but not self-employment tax.
Currently, sole proprietors pay self-employment tax
at a rate of 15.3 percent. This means that if a sole
proprietor and owner of a corporation both pay
$6,000 per year for health premiums, only the sole
proprietor pays an extra $918 in self-employment
taxes. The corporation owner was able to deduct the
health costs.
The NASE has long wanted to help you put that
money back where it belongs – in your pocket.
As a long-time supporter of eradicating the self-
employment tax on health insurance premiums,
we realize the burden it puts on your business and
personal cash flow.
And after years of meetings on Capitol Hill
educating lawmakers, we are closer than ever to
that goal.
Self-Employed January/February 2008
How You Can Impact The Law
It often takes years of work for a law to be finalized
and enacted.
Even a good idea with bipartisan support can easily
get caught up in the legislative process: education
of lawmakers, introduction of a bill in the House
of Representatives and the Senate, a positive vote to
pass the bill in both chambers of Congress, and the
president’s signature.
To help educate members of Congress about the
inequity of paying self-employment taxes on health
insurance premiums, the NASE received the best
help it could – help from you, our members, in
the form of personal stories about the effect the
additional tax payments had on your business.
Early in 2007, the NASE sent a call for action to
members. We were surprised at how many members
hadn’t realized they were paying this extra tax. But
when told about it, NASE Members calculated
that allowing a self-employment tax deduction on
health insurance would save them from $200 to
more than $2,000 annually.
Everyone had ideas about how the savings could
benefit their businesses or help them plan for the
future:
n Pay health-related costs. Many sole proprietors
said the money would help make health
insurance more affordable. One business owner
said the amount paid each year as a result of the
self-employment tax would cover two months
of premium costs. Others wanted to use the
money to pay medical bills.
n Add to retirement savings. Planning for their
financial future ranked high on the minds of
business owners.
n Education funds. Contributing to family college
costs was another popular response, as well as
offsetting business costs such as professional
development courses and licenses.
n Hiring additional workers. Having extra cash to
hire part-time employees would help a company
be more productive and take on more clients.
Armed with the information from these
responses, the NASE and other small-business
advocates began talking to your representatives in
Washington.
Advocacy News 23
Take A Stand Against
Unfair Taxes
Join the NASE and speak out for micro-businesses
by visiting our Legislative Action Center at
http://advocacy.NASE.org.
Simply enter your ZIP code and send an e-mail
or print a letter to mail to your legislators.
Take a stand against unfair taxes. It’s a true
answer to helping sole proprietors.
Many legislators were already aware of this issue,
but Reps. Wally Herger, R-Calif., and Ron Kind,
D-Wis., decided to take a stand. They introduced
H.R. 3660 in the House of Representatives to
eliminate the discriminatory tax provision.
In the Senate, Sens. Jeff Bingaman, D-N.M., and
Orrin Hatch, R-Utah, introduced S. 2239.
Today, the Equity for Our Nation’s Self-Employed
Act of 2007 has the support of more than 33
co-sponsors in Congress and more than 40 national
Kristie L. Darien is
and state organizations. Executive Director of
the NASE Legislative
Office and manages
Final Action Steps To Take the NASE legislative
affairs program in
The bill’s introduction into Congress is a huge first the association’s
step in this ongoing push for equity. But we need Washington, D.C.,
office. She works closely
to get more legislators on board – fast. Legislators with federal legislators,
need to be convinced that the tax code change the administration and
would benefit their constituents. small-business advocacy
organizations to ensure
that the legislative
That’s where you come in again. Here are the steps
priorities of the NASE
you need to take to help us jump the final hurdle. and micro-businesses
remain a priority in
n Contact your legislators in Congress. It’s easy at Congress. You can
http://advocacy.NASE.org. contact Darien at
advocacy@NASE.org.
n Tell them that you are a sole proprietor and
explain how the self-employment tax affects your
business by taking money out of your pocket.
n Tell them how much your health insurance
costs and how much money you would save if
you weren’t forced to pay self-employment taxes
on those premiums. It’s a simple calculation:
Cost of yearly health insurance premiums X
.153 = amount of extra tax you pay.
n Then, tell your legislations what you could do
with that money if able to reinvest it in your
business rather than pay the unfair tax. Maybe
you could purchase a new computer, advertise
services in the newspaper, invest for retirement
or hire additional employees.
With your urging, Congress will pass this bill and
make it law. n