The Republican tax bill will have short-term benefits for freelancers, but the long game is still uncertain

In a way, I’m relieved that it’s over. All of 2017 felt like a neverending wait for Republicans in the legislature to actually get something done. After a summer spent bungling their promised repeal of Obamacare it was possible to believe that the rumblings of tax reform wouldn’t amount to much either. However, given the aforementioned health care debacle and the unpopularity of the party’s leading eminence, it’s apparent that the desperation to put something on the president’s desk made the different factions just a little more willing to compromise. They might claw back some ground in the polling numbers as a result, or this may be the equivalent of tearing out the fixtures in an already-foreclosed house. Time will tell, but that’s not what I’m here to talk about.

A big break for the self-employed

Aside from corporations, people who are self-employed and make an average income (less than $157,500 for a single person or $315,000 for a married couple) might see the biggest immediate tax break out of anyone under the new system. That’s due to a new rule allowing people with “qualified” business income to take a deduction of 20% of that income. That’s a big amount: for someone in the 20% tax bracket, they would effectively now be paying only 16%. And while the “qualified” part of the rule excludes many people in the service, consulting, and performing industries, those exclusions only kick in when someone earns more than the $157,500/$315,000 income levels mentioned above.

Additionally, other tax deductions that the new law limits, reduces in significance, or does away with altogether for regular paycheck earners (like mortgage interest, tax preparation fees, and the home office deduction) are still available to self-employers on their Schedule C. The new 20% deduction, along with the chance to claim more deductions than are available to regular earners, means that if there was ever a time for as skilled professional with a middle-class income to go freelance or switch to independent contractor status, now is it.

Future murkiness

You knew there was going to be a “but”, right? And it’s a big one. The first caveat is that these parts of the law, along with all other provisions not related to the corporate tax cut, are set to expire in 2027. And they may not make it that long, either: it’s possible that, given the unpopularity of the new law and the administration that cheered it on, Democrats could take control of both chambers of Congress and the presidency as soon as 2020. In that case, all bets are off, particularly if the tax breaks haven’t provided the economic boost promised by the law’s proponents.

Health scare

There’s another provision of the law that will have an indirect but possibly profound effect on the monetary and personal wellbeing of self-employers, which is the repeal of the individual health insurance mandate. Before the Affordable Care Act, many people without access to an employer health insurance plan (yours truly included) chose to simply go without and hope for the best. Now we’re back to the bad old days, where many people who may have signed up for insurance – for whom the penalty for not having insurance was just enough of a nudge to go into the market – might be tempted to drop it. Newly-independent people, young and healthy, might not sign up to begin with. And the effects will be felt all over, from the uninsured whose costs spiral out of control when they develop unexpected health problems, to everyone else who stays in the market and sees premiums rise as the insured pool grows older and sicker.

Ultimately it’s probable (and in all likelihood this was the intention) that the new bill will mean lower taxes for many people, including self-employers, in 2018 and 2019. And while there is strong consensus from experts on the expected economic effects of the bill as passed, what’s unknown is how lawmakers – and voters – will react if and when those effects happen. For freelancers anyway, enjoy your benefits for the next few years – maybe put what you saved on taxes into a health savings account in case the insurance situation gets worse – but don’t expect them to stick around forever.

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