It is a sad, but true fact: health insurance is a luxury item for many small business owners, purchased when times are good and forsaken when times are lean. This is especially true for self-employed and micro-businesses -- our nation's smallest businesses. Thanks to a minor quirk in the tax code that has a major effect on their bottom lines, the self-employed are the only business entities that receive no tax benefit for purchasing coverage. Every other type of business, like corporations and partnerships, can write off the cost of health insurance as a business expense.
Congress delivered a temporary reprieve of this historic oversight in the form of the self-employed health care tax deduction included in the passage of last fall's Small Business Jobs Act. For the 2010 tax year, self-employed business owners are able to deduct the cost of their health care coverage, which will put about 15% of their premium back in their pocket. For the average self-employed business owner, the temporary deduction amounts to about $2,000.
A large business might not notice an extra $2,000 on its books, but this is not an insignificant amount to a self-employed business owner. The temporary health care tax deduction could pay for an extra phone line for a year or fund online advertising. It could be used to purchase new office equipment or pay for an energy efficient lighting upgrade. These are tangible benefits to small businesses that can help them stay competitive -- and in business -- in an economy that continues to shun robust recovery.
But here's the rub. Congress only gave self-employed business owners the 2010 tax year to claim this deduction. An overwhelming number of the potential beneficiaries of the deduction won't be able to take advantage because health coverage is a luxury they can't currently afford. Self-employed business owners need Congress to make the deduction permanent and make the tax benefit of purchasing coverage fair to all business entities.
What the self-employed need is more than just lip-service from President Obama and Congress, who both are proclaiming that it's the small business community that will put our economy back on track. We don't need another major piece of legislation: thoughtful tweaks to existing law will help small businesses stay afloat and expand. The temporary self-employed health care tax deduction is a step in the right direction, but making it permanent is just one of the little fixes our policymakers can address to support the small business community.
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General Election: Nov 3, 2020
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