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LIC-6.02 - Self-Employment Tax Deduction and Health Care Premium Deduction

SELF-EMPLOYMENT TAX DEDUCTION AND HEALTH CARE PREMIUM DEDUCTION
Administrative Rules Adopted by Bureau of Licenses Pursuant to Rule-Making Authority
ARB-LIC-6.02

 

Generally, a self-employed individual (sole proprietor) subject to self-employment taxes is allowed a deduction equal to the Federal deduction for the employer-equivalent portion of self-employment taxes, as calculated on Schedule SE and reported on line 27* of Form 1040. The deduction is taken as an adjustment to net income for business license tax and business income tax purposes. No deduction is allowed for self-employment taxes included in line 27* that relate to self-employment income from a pass-through interest in a Partnership or S-Corporation.

 

Additionally, self-employed individuals who are allowed a federal adjustment for a portion of their health insurance expenses may take a deduction which equals the federal deduction as an adjustment to net income for business license tax and business income tax purposes.

 

Example: Sally Lawrence, a sole proprietor, files a Schedule C and a Schedule SE. Ms. Lawrence also pays $4,000 in health insurance premiums. The net income on Schedule C is $50,000. The deduction for the employer-equivalent portion of self-employment tax is $3,532. This amount is reported on line 27* of Form 1040 to compute AGI and is an allowable subtraction on line 4 of the City/County Form SP. Additionally, $1,000 of the health insurance premiums are deducted on page 1, line 29*, of the Form 1040. Ms. Lawrence is allowed a deduction of $4,532 ($3,532 plus $1,000) from net income.

 

A Partnership or an S-Corporation is not allowed either the deduction for the employer-equivalent portion of self-employment taxes or the deduction for self-employed payment of health insurance premiums. The expenses allowed as adjustments on the individual partner’s or shareholder’s Form 1040 are not expenses of the Partnership or of the S-Corporation.

 

*Line number reference is based on the 2011 Form 1040.

 


  
REFERENCES
 
Portland City Code Section 7.02.600 B
 
Multnomah County Code Section 12.600 B
 

HISTORY
 
Submitted for inclusion in PPD September 17, 2002.
Originally adopted as Bureau of Licenses Administrative Rule 600.93-4 November 23, 1993, amended as 600.93-4A August 29, 1994 (health insurance premium deduction added) and December 26, 2000 (housekeeping changes).
Amended by Director of Revenue Bureau October 11, 2012.

Table of Contents
LIC-6.01 - Payments Deemed to be Compensation to Owners
LIC-6.02 - Self-Employment Tax Deduction and Health Care Premium Deduction
LIC-6.03 - Change of Ownership During the Year and Calculation of the Compensation Allowance Deduction
LIC-6.04 - Patronage Dividends
LIC-6.05 - Short Periods Count as Tax Year
LIC-6.06 - Definition of Controlling Shareholders and Calculation of Number of Controlling Shareholders
LIC-6.07 - Treatment of Currently Taxed Pass-Through Income
LIC-6.08 - Partnerships - Partner Level Deduction Election
LIC-6.09 - Qualified Retirement Plans
LIC-6.10 - De Minimus Business Activity for Personal Services
LIC-6.11 - Apportionment of Gains and Incomes Due to Sale of a Business
LIC-6.12 - Business Activity and Apportionment of Sales of Tangible Personal Property
LIC-6.13 - De Minimus Business Activity for Tangible Personal Property
LIC-6.14 - Apportionment of Gross Income from Business Activities Other than Sales of Tangible Personal Property
LIC-6.15 - Apportionment for Banking Income
LIC-6.16 - Apportionment for Domestic Insurers
LIC-6.17 - Apportionment for Freight Carriers
LIC-6.18 - Apportionment for Passenger Carriers
LIC-6.19 - Apportionment for Incomes Subject to PCC Chapters 7.12 or 7.14
LIC-6.20 - Apportionment for Providers of Electronic or Telephonic Services