Tucked away in the Small Business Jobs and Credit Act of 2010 is a provision that will save some self-employed people some serious money.
But you'd probably never know about it until you did your taxes unless you read this diary. And Rahm Emmanuel forbid that the administration tout its own horn to the self-employed who will benefit and anyone else who will listen for saving these stalwarts of American entrepreneurship as much as $1500 on this year's taxes.
Intrigued?
It's pretty simple. The bill, as explained by Senator Udall
Allows self-employed individuals to deduct health insurance costs for purposes of paying the self-employment tax.
So what does that mean? Assume you are self-employed, married, have no other income, have no dependents, and make $50,000 a year from your enterprise.
Besides paying regular federal income tax on your earnings, you also pay self-employment tax for Social Security and Medicare. To be exact, you pay 15.3% of 92.35% of your earnings until your earnings exceed $106,800. (Quiz in ten minutes).
On $50,000, that works out to self-employment tax totalling $7065.
Assume that you are lucky enough to be able to get health insurance for both you and your spouse, and that you pay $10,000 a year for it. (This is not at all out of line if you are 50 years old or so, and is on the low end in some states, coming to 'only' about $413/month/person).
With this new provision, you're now paying self-employment tax on only $40,000 of income, not $50,000.
That means you're paying $5652 in self-employment tax instead of $7065, a savings of $1413!
(Almost enough to offset the 15% increase in health insurance your insurance company is going to hit you with in a few months.)
So there you go. If you happen to be self-employed, married, and able to afford health insurance, the government just put about $1400 in your pocket(1). (It's actually slightly more complicated than that, because you get to deduct half the self-employment tax you pay on Form 1040, and now you're paying less self-employment tax. But it works out to a relatively small downward adjustment of $100, hence the $1300 figure in the title).
It doesn't matter how much you make, as long as you are making at least as much from your business as you are paying in health insurance; you'll get the same saving. If you pay less than $10,000 in health insurance, you'll save less, and if you pay mroe than $10,000, you'll save more. It's an extremely progressive tax savings -- the less you make, the higher percentage of your income you save!
Unfortunately, it only applies to 2010. C'est la vie.
Unfortunately, what's most interesting about this is not the details of who gets how much, but that this is yet another example of the Administration and the Democratic Party not being competent at tooting their own horn. Issue after issue after issue, they can't figure out how to get their message across:
The economy, tax relief, health care, foreign policy. The administration is running out of issues to crow about... And here we go again; once more a progressive provision of a law that gives a chunk of money back to some people who could use it instead of to millionaire banksters drowns in the silence.
"Fools", said I, "You do not know
Silence like a cancer grows
Hear my words that I might teach you
Take my arms that I might reach you"
But my words, like silent raindrops fell
And echoed
In the wells of silence
It may be possible to run a government that way, but you sure as hell can't run an election that way, as Democrats seem more and more likely to find out come November.
And yes, if I had a solution I'd give it to you. I don't. It's just damned frustrating.
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(1) The bill still has to pass the House and be signed by the President into law.