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Health Insurance California For Self Employed Question & Answers

2014 December 1
by Sarah Fields

Daniel asks…

Are there tax advantages to filing for a domestic partnership?

I am currently engaged and was wondering if there are tax advantages if the two of us filed for domestic partnership? I looked at the requirements and we meet all of them.

Sarah Fields answers:

Different states have different rules:

Here for CA:

Effective January 1, 2002, several taxpayer benefits were extended to a taxpayer’s domestic partner and the domestic partner’s dependent(s) for medical expenses and health insurance benefits that occur on or after January 1, 2002. The benefits provided by Revenue and Taxation Code section 17021.7 include:

* An exclusion from gross income for employer-provided accident and health insurance.
* An exclusion from gross income for medical expense reimbursement if the expense was not previously deducted.
* Medical expenses deductible as an itemized deduction.
* Long-term health care insurance deductible as a medical expense.
* A deduction by self-employed individuals for health insurance costs. The deduction may not exceed the net earnings from the trade or business in which the insurance plan is established.

Federal tax law does not allow the same benefits for domestic partners. These deductions are taken as an adjustment on the Schedule CA(540) or Schedule CA(540NR).

In general, California now affords the same rights and responsibilities to RDPs that previously were available only to married individuals. For California tax purposes, the same rules applicable to married individuals (relating to filing status, community property income, etc.) now apply to RDPs. However, because the federal government does not recognize domestic partners as married individuals for federal tax (IRS) purposes, RDPs will continue to file as unmarried individuals on their federal returns.

Are all domestic partners required to file joint or married filing separate returns under the new law?

No, only domestic partners who are registered with the California Secretary of State are required to file using the married filing joint or married filing separate filing status. More information on unions entered into from other states will be provided on this Website in the near future.

When will registered domestic partners (RDPs) use the same filing status rules as married individuals when filing California returns?

The new law applies for RDPs filing their 2007 tax returns in 2008.

Can RDPs file a California tax return with the same filing status as they use on their federal return?

No, the new law requires RDPs to file a joint return using the married filing joint or married filing separate filing status. Federal law does not allow RDPs to file a joint return.

David asks…

If the Liberals really want everybody to have Health Insurance, why would they fine those who cannot afford it?

There has got to be a better way to get people insured ,than fine those who are financially vulnerable.

Sarah Fields answers:

Oh, the liberals are going to provide subsidies to those they decide cannot afford to pay full price — and, after all, Medicaid is already free.

now, for the ‘single payer’ advocates — here’s the blunt facts.

1. America’s GDP is about 14 trillion per year.

2. About 17% of this is medical care and related health items, so that’s 2.38 trillion per year.

3. The current size of the Federal government [pre-Obama] was about 20% of the total economy, or some $2.8 trillion per year.

4. The federal deficit was [pre-Obama] about $300 billion a year.

5. It follows that all federal revenues [taxes] totaled about $2.5 trillion per year.

6. Government health care was already some 48% of health care spending, or about $1.14 trillion per year.

7. The increase in total costs to the government, IF no increase in medical spending is permitted at all, would then be [52% of 2.38 trillion] or $1.2 trillion per year.

8. In round numbers that would require that all tax rates be increased to 150 percent of their present levels. [1.2 trillion added costs divided by 2.5 trillion total revenues = 50% increase in tax rates].

9. The current marginal tax rate on the income of a well to do self employed person is [assuming the Bush tax cuts are repealed for high earners] … 14.9% social insurance tax plus 39% Federal income tax for a total tax of 53.9%

10. Increasing this by 1/2 would result in a total margin tax rate to the self-employed successful people of about 81%. State and city income taxes are added on top of this — which total 12% or so in the highest tax locations.

11. Please tell me who in their right mind will work hard at self-employment when their total tax rate is 93% ?? Hint: the lawyers in California and New York won’t, that’s for certain.

What’ll actually happen is that demand for “free” health care, and thus total cost, will expand by at least 20% while tax revenues from the 50% tax increase won’t begin to produce the revenue calculated — anything “free” is always abused and overused while anything that produces almost no income won’t be done.

It follows that 12. Taxes on the middle class will have to be increased more than 50%, and/or taxes will have to be imposed on the poor people who presently do not pay any taxes.

Single payer is flopping in Britain for exactly these reasons and is chronically underfunded in Canada and Sweden for exactly these reasons. It flat won’t work.

What works is working, not ‘free’ handouts.

William asks…

How do the contractors expect to be paid, and to keep their pay from retaliatory taxes ?

Is it wise to trust these Politicians ?

Sarah Fields answers:

My question is rather or not it is wise to have a city that takes on contractors that may not have the necessary insurances and financial means to protect themselves and the city. If a contractor gets hurt on the job then they can have retaliation depending on the contractual agreement and you can’t as a private employer just make employees contractors as there are liberties that come with being a true contract employee. This could create a liability for the city as an employer that they aren’t expecting because of the laws separating employees and contractors. Likewise if a citizen has a grievance against one of these contractors and they were not properly vetted and investigated then the city could face larger liabilities when dealing with these issues for a lack of protection for the citizens.

I personally don’t know what payroll taxes the city has to pay on employees being a government agency, but the employees who take these positions as contractors are now responsible for all payroll taxes in addition to the portions they would pay as an employee.

Most contractors are able to charge more for services to cover their expenses of being self employed, it makes me wonder how the city is dealing with all of these positions from that aspect.

How is this aligned with our new Health Care reform? Cities cutting employees and making them contractors so that they don’t have to cover the expenses, sounds like a horrible idea for the employees.

Never trust a politician!

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