Small Business Jobs Credit Act of 2010

The Tax Attic with Jerry Coon — October 7, 2010

October 7, 2010 // 0 Comments

Three new provisions to help small businesses In a previous article, I stated that our present Congress is not a “do nothing” Congress. They have shown that they are not afraid to pass bills and make laws. Not everyone agrees with the bills they have passed and laws they have instituted, but they do keep trying. For example, just last Thursday Congress passed the Small Business Jobs and Credit Act of 2010. This bill has some provisions that will help many small businesses such as self-employed sole proprietors, partnerships and small corporations. Of course, it also has a myriad of provisions that seem to be written to affect about one person or entity in the entire United States. I will highlight the provisions that affect many of my tax clients. First, and perhaps best, there is a provision that will allow self-employed taxpayers to deduct premiums paid for health insurance for the owner and owner’s family when calculating the taxpayers’ self-employment tax. In light of the cost of health insurance today and where those costs are heading, this is huge. This provision only affects the 2010 tax year, but one year is better than no years. Making this change is perceived as leveling the playing field between employees and self-employed taxpayers. Currently, if a taxpayer works for a company and the company supplies health insurance for the taxpayer, this is a totally tax-free fringe benefit. The company deducts the premiums paid and the taxpayer does not have to claim the premium as a taxable benefit. However, up until now that has not been the case for self-employed taxpayers. The self-employed taxpayer has always been allowed to deduct the premium as an adjustment to income so they don’t pay any regular tax on the premium. But they have never been able to deduct the premium when calculating the amount of Social Security tax due on their profit. Social Security tax is calculated at 15.3% of the taxpayer’s profit. So while the employees of the world don’t tax regular tax or Social Security tax on their tax-free fringe, the self-employed taxpayers of the world have been forced to pay a 15.3% tax on their almost tax-free fringe. That has always been perceived as not being fair and […]