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22 Advocacy News

Self-Employed January/February 2008

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.

lawmakers push this issue into the spotlight and offer their support to the cause.

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.

The result was the introduction of the Equity for Our Nation’s Self-Employed Act late last year.

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

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 selfemployment 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.

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.

Advocacy News 23

Self-Employed January/February 2008

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.

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.

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 and state organizations.

Final Action Steps To Take The bill’s introduction into Congress is a huge first step in this ongoing push for equity. But we need to get more legislators on board – fast. Legislators need to be convinced that the tax code change would benefit their constituents. That’s where you come in again. Here are the steps you need to take to help us jump the final hurdle. n

Contact your legislators in Congress. It’s easy at http://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

Kristie L. Darien is Executive Director of the NASE Legislative Office and manages the NASE legislative affairs program in the association’s Washington, D.C., office. She works closely with federal legislators, the administration and small-business advocacy organizations to ensure that the legislative priorities of the NASE and micro-businesses remain a priority in Congress. You can contact Darien at [email protected].