Give Me a Break: New Tax Break for the Self Employed
Tax breaks are always good news—and this time around, they’re for the self-employed. Unfortunately not spelled out in neon lights, the new legislation allows workers who pay their own health insurance premiums to deduct the costs before calculating their payroll taxes.
New Calculations Lead to Considerable Savings
We know—it’s revolutionary, and you’re already running a Google search for “tax deduction party costumes.” But seriously, the New York Times estimates that self-employed people will save about 15% of their usual health insurance costs. From the Times:
So consider 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.
“It’s almost like you are getting a 15 percent discount on your premiums,” Ms. Erb said, because many self-employed people will save about 15 percent of what they pay for their health insurance.
Take Advantage of Catching a Break
As per usual, the impact of the tax break decreases as income level increases. But if you are self-employed and paying the insurance premiums for you (and your family), make sure to take these calculations into account. Payroll taxes include the costs of Social Security and Medicare, and tend to hit self-employed workers harder, as they can’t split the cost among employees. There’s no reason why, as a self-employed person who shoulders the costs of payroll taxes, income tax, and insurance premiums, you shouldn’t get a leg up. So take one!
Tell us in the comments: How do you usually hear about changes in tax policy? Do you follow it in the news, does your accountant clue you in, or do you find out after the fact?