Small-business owners across the United States have Rep. Ron Kind (D-Wis.) to thank for the introduction of the Equity for Our Nation’s Self-Employed Act (H.R. 3660). The bill seeks to eliminate an inequity in the tax code that requires our nation’s 21 million self-employed individuals to pay an additional 15.3 percent in payroll taxes on the cost of their health insurance premiums.
Health care costs have been rising exponentially for the self-employed in our nation.
According to survey conducted by the National Association for the Self-Employed, the median annual increase in premium costs for a micro-business, those with 10 or less employees, is 17 percent. In addition to escalating cost, the majority if not all self-employed businesses buy coverage in the individual insurance market which is fraught with disadvantages compared to the benefits of the group market. The largest disparity is the tax treatment of health insurance in the individual market.
Under the current tax code, corporations are able to deduct health insurance premiums as a business expense and to forego payroll (FICA) taxes on these expenses. Employees of all businesses are able to pay their employee contribution to health coverage with pre-tax dollars. However, those that are sole-proprietors are unable to deduct premiums as a business expense and are required to pay an additional 15.3 percent self-employment tax, their payroll tax, on their health care costs. The self-employed are the only segment of the business population that pays this extra tax on health insurance.
Rep. Kind’s legislation, if passed into law, will level the playing field for the self-employed and allow the IRS to provide sole-proprietors a means to deduct the cost of their health insurance premium when calculating self-employment tax. This in turn will make health coverage more affordable for millions of Americans who now make up the majority of the working uninsured.
If you are self-employed, you are likely saying to yourself that this sounds all well and good but how does this affect my bottom line. Will you really benefit from this legislation if passed? The answer is resoundingly yes.
Kathleen and Doug Korrison, owners of Arcadia Garage Door Co., are sole-proprietors in Arcadia, Wis. Doug installs, sells and services garage doors while Kathleen manages the operating functions of the business. While the work is steady, the couple’s financial resources are still stretched thin forcing Kathleen to work additional part-time jobs to make ends meet.
At present, Kathleen and Doug are paying approximately $7,090 for health insurance per year. Since they are self-employed, they are currently unable to deduct these health insurance costs from the 15.3 percent in self-employment taxes they pay every year on income. Thus, the Korrison’s are currently paying close to $1,085 in extra taxes.
If the Equity for Our Nation’s Self-Employed Act of 2007 were to become law, the Korrison’s would save their $1,085 per year and millions of other self-employed business owners would be able to save hundreds or thousands of dollars. This is money that could be used to reinvest and grow their business, cover out-of-pocket expenses of their current health coverage or provide funds to afford health insurance if they are currently uninsured.
In addition to the introduction of this important legislation in the House of Representatives by Rep. Kind and Rep. Wally Herger (R-Calif.), the companion bill has also been introduced in the United States Senate by Sen. Jeff Bingaman (D-N.M.) and Sen. Orrin Hatch (R-Utah).
As Congress debates and struggles to pass comprehensive health care reform, this legislation represents a targeted, achievable approach to addressing the affordability of health coverage for small businesses. The biggest obstacle to passage we face is the current strict budget climate. However, the self-employed are a critical component of our nation’s economy. An investment in their future is an investment in our country’s future.
Our policy and tax code should support, not harm, these budding businesses. We ask them to grow, to create jobs, to compete, yet we do not provide a fair playing field to allow them to do so.
Passage of the Equity for Our Nation’s Self-Employed Act of 2007 (H.R. 3660/ S.2239) will move us one step closer to parity. The National Association for the Self Employed, in addition to our coalition of leading state and national organizations, applauds those members of Congress supporting this critical effort towards equity.
Kristie Darien is director of legislative affairs for the National Association for the Self Employed (NASE) in Dallas, Texas.
