|  Home  |  Site Search  |  Tax News & Views  |  

Self-Employed May Get Higher Deduction for Health Insurance

Friday, May 17, 1996

Deloitte & Touche OnLine

Small business owners and the self-employed may get a bigger tax deduction for the costs of their health insurance this year.

The Senate in April passed unanimously the Kennedy-Kassebaum health care reform bill, which includes a provision raising the deduction to 80 percent.

The House version of the same bill proposes raising the deduction to 50 percent. The House and the Senate next must meet in conference to work out their differences. Senate Majority Leader Robert Dole, R-Kan., has been unable to convene that conference so far, because he is insisting on naming conferees who support an unrelated Medical Savings Account provision in the House bill that the majority of senators oppose. It's too soon to predict what the conference will do, if it ever gets to meet.

Under current law, the self-employed (usually sole proprietors or partners in a partnership) can deduct 30 percent of the cost of their health insurance. It used to be only 25 percent, but Congress raised the deduction in March 1995.

Small business owners and self-employed people have lobbied for a long time to have this deduction raised. According to the National Federation of Independent Business, health insurance often costs up to 30 percent more for small business owners than for large companies. That's because small businesses usually must buy individual policies, which tend to be more expensive than group policies (which larger businesses can buy since they purchase insurance for so many people at once).

This proposal may level the playing field for the self-employed. After all, incorporated businesses can deduct 100 percent of the cost of their health insurance premiums. It only seems fair to raise the deduction for the self-employed.