The Small Business Jobs Act allows self-employed business owners to deduct the cost of health insurance for themselves and their family members as a business expense when they calculate their 2010 self-employment tax. Under previous law, self-employed individuals could only deduct health insurance costs for income tax purposes. The inability to deduct these costs when calculating the self-employment tax, which covers both the employer's and employee's share of payroll taxes, meant the self-employed paid a 15.3 percent tax on money that was spent on health insurance premiums.
Providing the self-employed with relief from this additional tax was one of the $12 billion in tax breaks included in the Small Business Jobs Act, which passed the Senate by a 61-38 vote Sept. 16 and was expected to clear the House a week later.
"Self-employed Americans have finally received some bottom-line relief in this difficult climate," said Kristie Arslan, executive director of the National Association for the Self-Employed. "We hope that this legislation symbolizes that lawmakers are starting to pay attention to the needs of the self-employed, which represent 78 percent of all small businesses in the U.S."
The legislation also allows small businesses to write off $500,000 of capital expenditures in 2010 and 2011. This year's Section 179 expensing limit had been $250,000, and it was scheduled to drop to $25,000 next year. The bill also allows businesses of any size to write off 50 percent of the cost of capital expenditures in 2010, extending a bonus depreciation break that had been in effect in 2008 and 2009.
For more information on tax breaks in the bill, see http://finance.senate.gov