Proposal Would Help Self-Employed

Published August 1, 2006

U.S. Reps. Melissa Hart (R-PA) and Don Manzullo (R-IL) are working to build support for a bill they introduced that would level the playing field between employees of corporations and the self-employed when it comes to purchasing health insurance.

Hart, a member of the House Ways and Means Committee, and Manzullo, chairman of the Small Business Committee, introduced on March 16 the Equity for Our Nation’s Self-Employed Act (H.R. 4961), which would give the same health care tax advantage to those who are self-employed as is currently received by those who work for corporations. At press time, Hart and Manzullo were actively seeking co-sponsors and building coalition support in order to bring about action this fall.

Under current law, an employee who receives health insurance through his employer does not pay Social Security or Medicare taxes on that benefit. Moreover, if the employee contributes to the premiums for that plan, his or her contributions are paid with pre-tax dollars. The self-employed, however, who also must self-insure, cannot deduct from their taxable income the amount they pay for insurance.

For example, if an employee pays $200 per month to participate in an employer’s health care plan (with the employer paying the remainder of the premium), that $2,400 paid over a year is not taxed by the federal government. By contrast, if a self-employed person pays $800 per month for health care, that $9,600 paid over a year is subject to Social Security and Medicare taxes (generally known as payroll taxes), which for self-employed individuals has a rate of 15.3 percent. If the Hart and Manzullo measure becomes law, the self-employed individual would save about $1,470 in taxes per year.

Helping the Self-Employed

“Surging health care costs are drowning our small business owners, especially the self-employed who have to pay extra tax on their premiums,” Manzullo said in a March 16 news release. “This is a wonderful bill that would provide our small employers–the job creators of our economy–tremendous relief at a small cost.”

Hart agreed.

“Approximately 60 percent of Americans who do not have health insurance work for small businesses that can’t afford the coverage,” Hart said in a March 16 statement. “Our legislation will enable millions … to afford coverage. This legislation corrects an inequity that unfairly punishes the self-employed … [by] level[ing] the playing field for the self-employed by lowering the economic burden.”

A Coalition of Support

Several organizations representing small business and the self-employed, as well as the Council for Affordable Health Coverage–a coalition of health insurance companies, small business associations, and policy organizations–have expressed support for the measure.

“The National Small Business Association enthusiastically supports this bill and will make it a top priority for the association,” the group’s president, Todd McCracken, said at the bill’s March 16 unveiling.

Robert Hughes, president of the National Association for the Self-Employed (NASE), which represents more than 250,000 members, agreed.

“Eliminating the payment of self-employment taxes on health insurance premiums is the NASE’s number one legislative priority,” Hughes said. “The fact that the self-employed cannot deduct the cost of health insurance premiums as a business expense, which all other business entities can, is just unfair. The added cost contributes to why so many self-employed individuals decide to forego getting health coverage all together.”

Michael Coulter ([email protected]) teaches political science at Grove City College in Pennsylvania.