Self employed folks, Health Insurance and Taxes

Sooooooooo......I'm helping a friend who is self-employed double check that he s paying in enough in estimated taxes so that there will not be nasty surprises come filing day next April. Been awhile since I've done that so I go to the IRS website and pull some forms - notably Form 1040-ES (2011). This is what I've learned:

(1) "Beginning after February 12, 2011, the credit (e.g., health coverage tax credit) has decreased to 65% (from 80%) for amounts paid for qualified health insurance coverage for you, your spouse, and other qualifying family members." From page 2 of said IRS publication.

(2) "The following benefits are scheduled to expire or have been repealed and will not be available for 2011.........Self-employed health insurance deduction when figuring self-employment tax." From pages 2-3 of said IRS publication.



Why the hell didn't I hear some of our Dem party leaders complaining about this? I am left with the conclusion that they simply do not care about the increasing burden they are placing on many folks who are barely getting by to start with.

The self-employed insurance deduction will remain in place for income tax calculation, the same as it has been for years prior to 2010. Apparently, the deductability of health insurance for purposes of calculating SE tax (as opposed to income tax) was a one year deduction for 2010 only. See "Special Rule for 2010 Only" at http://taxes.about.com/od/deductionscredits/qt/healthinsurance.htm
The deduction for 2010 corrected the inequality that existed prior to 2010 by allowing self-employed to deduct health insurance costs from SE/payroll taxes as is the case with others, but the inequality returns in 2011.

The Health Coverage Tax CREDIT program is being reduced (Eligibility requirements limit that CREDIT to #
Pension Benefit Guaranty Corporation payee (PBGC payee) who is 55 years old or older, and Trade Adjustment Assistance recipient(TAA recipient) and dependents of those two categories. http://www.irs.gov/individuals/article/0,,id=109945,00.html

I have no idea why we havent gone this way but have made things even more difficult for small business.

That's what I'd do as well.

Lots of those long-term unemployed/underemployed folks are trying to create their own sources of revenue and income right now. Most of 'em would benefit for having access to capital to be used for a variety of purposes.

But we live in a nation that seems to think self-employed folks are failures because they either can't or won't try to make it in the corporate world.

We can't afford health insurance so what does it matter what the write off percentage is?

My own insurance policy carries a $10,000 deductible, has a co-pay beyond that, doesn't cover doctor visits and only covers generic drugs. I haven't seen a doctor in nearly 15 years. But my general health is okay - not exceptional and not without impairment but functional.

The fellow I am helping is in his 50s and has a wife with a serious but undiagnosed illness. Mentally foggy, largely dependent upon a wheelchair, shaky, chronic pain. His business is an LLC and he has no employees other than his wife. He pays her a small salary so that the two of them can qualify for a group insurance policy - otherwise she would be uninsurable and their finances would be even more precarious. The two of them pay over $16,000 annually in health insurance premiums. Even with that insurance they are well on their way to paying a comparable amount in annual medical expenses. This woman has been going through a wide variety of diagnostic testing for over 3 years now. She's seen lots of clueless doctors and medical specialists who've done lots of tests and charged lots of money - and still can't figure out what is wrong with her or how to manage her symptoms. Without this insurance there is little doubt they would already be bankrupt and possibly homeless. They are afraid that the small little salary he pays her to be able to get that insurance coverage will disqualif her from qualifying for disability - when her case is eventually heard.

This fellow is highly skilled and has an excellent work history. Self-employment is fairly new to him. He opened his own business after his last employer shut down and he was unable to secure new employment. If you don't factor in the cost of health insurance and health care then he is dping well. But that expense for he and his wife tops $30,000 annually.

I totally get what you are saying. But as the admin at a medical clinic that serves lots of pts who are self employed, I can tell you that most of them don't have insurance and can't afford it.

Which is why I mentioned that any deductions (etc) are a complete non issue for them. For many, and I daresay most folks without insurance, tax deductions are the leasts of their worries. I can't tell you how many payment plans and reduced payments and waived fees that we do on a daily basis. And it is getting worse.

I worry that the number of uninsured has risen from 50 million to 57 million. A contact I have at one of the insurance companies (who hates her job so is pretty forthcoming about what happens in the board room) tells me that they are being instructed to get as many people off the rolls before the mandate rolls in next year so that they can maximize the amount they charge in premium.

I fucking HATE insurance companies because they make decisions daily that they KNOW will kill people and they just don't fucking care.

I do appreciate your inside info.

The self-employed health insurance deduction is made on the first page of your 1040, not on your self-employment tax form. It is 100%, not 80%. There is no "self-employment health insurance tax credit," a tax credit being one of those things that you subtract from your "tax to pay" after you've figured it on the second page of your 1040.

Your self-employment tax is what you pay instead of Social Security/Medicare, and it is figured on a form that's SE something or other. It is in addition to your income tax. The formula is

gross income x 0.92plus a few decimal places
Take that answer and multiply by 0.153.

Health insurance doesn't figure into Self-Employment Tax.

Perhaps you're talking about Estimated Tax?

I stated that I was helping this fellow figure out whether or not he was paying an adequate sum in estimated taxes.

The medical insurance and expenses are relevant because of their size and potential effect on taxable income at the end of the year. Those estimated taxes are based on anticipated taxable income not on net business income. Allowances have to be made for anything that might affect taxable income.

If you review the IRS 1040-ES calculation to compute estimated taxes you will find that it is necessary to estimate self-employment tax to do the calculation.

The large donors with lobbyists are the only ones who get the "freebies"..:grr: