Freelancers get more of a boost from the new tax plan than we previously expected - but there's a catch
• The new tax law's pass-through deduction is a major boost for freelancers.
• This pass-through policy also affects more freelancers than it did in previous iterations of Republican tax reform.
• But Steve King of Small Business Labs predicts the reform's repeal of the individual mandate could ultimately hurt freelancers.
Freelancers may win big from the new tax plan's pass-through deduction, but it isn't all good news.
Many freelancers run pass-through businesses - including LLCs and S-corporations - that don't pay corporate taxes. Instead, income earned from the business "passes through" to the owner, who then pays individual taxes on the earnings.
Steve King of Small Business Labs wrote that the reform's pass-through provision will allow freelancers to deduct "20% of their revenue from their taxable income." That's a sizeable deduction.
At first, it appeared that only the wealthiest people would be able to claim the pass-through deduction, but the current law has loosened restrictions.
"This deduction, coupled with new, lower tax rates means most freelancers should pay less in federal taxes in 2018 than they would have under the former tax code," King writes.
But, there's a catch.
Freelancers may not get to pocket the extra tax savings, as their health care costs could soon rise.
While US President Donald Trump's claims regarding the demise of the Affordable Care Act were greatly exaggerated, the Republican plan did scrap Obamacare's individual mandate, Business Insider's Bob Bryan reported. This ensured that Americans would pay a fine if they didn't buy health insurance.
The move certainly didn't dampen Obamacare sign ups for 2018, but it could hurt freelancers going forward. Healthcare premiums in the Obamacare markets - where many freelancers turn for health insurance - could increase by 10%, according to estimates from the Congressional Budget Office.
Small Business Labs predicted that the repeal of the individual mandate will make healthcare more expensive and harder to obtain for people without "traditional corporate insurance plans."
Despite the pass-through tax deduction, the healthcare situation could lead Americans to think twice before leaving their nine-to-five gigs to pursue freelance work.