New Coalition Fights to End Tax Discrimination against Self-Employed

Published December 1, 2003

Equity for Our Nation’s Self-Employed, a new coalition of small business trade associations, including the American Farm Bureau Federation, has come together to fight a tax code discrimination that penalizes self-employed Americans.

Current tax law requires sole proprietors to pay 15.3 percent in self-employment tax (FICA tax) on their health insurance premiums, while larger businesses are able to deduct this expense as a regular cost of doing business. Equity for Our Nation’s Self-Employed supports H.R. 1873, the Self-Employed Health Care Affordability Act, to fix that disparity.

The average self-employed individual pays $7,954 annually in health insurance premiums for family coverage, according to a 2002 Kaiser Family Foundation study. Under the current tax code, that sole proprietor would pay $1,217 (15.3 percent) in self-employment taxes on this amount, while other business entities can fully deduct their health costs.

“Other business owners have the opportunity to pay for health insurance premiums before any tax calculation is applied to the earnings of their officers and employees,” said Keith Hall, a self-employed certified public accountant from Dallas, Texas. “This means that before anything else is taken into consideration, the cost of my health insurance is up to 15.3 percent higher than the owner of the business next door, solely because I am self-employed. He may have the same size family, the same health concerns, and the same medical history, but I will still pay 15 percent more for my coverage than he does simply because the Internal Revenue Code does not allow me to fully deduct my health insurance premiums.”

The Self-Employed Health Care Affordability Act, H.R. 1873, would allow the self-employed to fully deduct their health coverage costs. H.R. 1873 comes at a time when small business owners face uncertainties in how they will fare in the current economic conditions and are anxious to recover cash for the day-to-day operations of their businesses.

For self-employed individuals like Christine Krupinski, it is time for the federal government to step up to help “Main Street” businesses.

“I would love to buy new graphic design tools for my business, but don’t have the money to,” said Krupinski, owner of CK Art and Design in Fairfax, Virginia. “But if I were able to save the extra money that I pay in taxes on my health insurance premiums, I would be able to purchase the tools, putting that money back into the economy while bettering my business.”

The added cost on top of already skyrocketing premiums is also often a deterrent for the self-employed to purchase health insurance. Today, more than 60 percent of the 41 million uninsured Americans are from families headed by a self-employed person or a person working for a small business.

For more information …

on the self-employment tax on health insurance premiums, visit