One group of taxpayers is getting a big break that may help them come out ahead under the new tax rules.
That group includes small-business owners and freelancers as beneficiaries of the Tax Cuts and Jobs Act, which allows these workers to lop off 20 percent of their income before paying the tax man. For example, an independent contractor who earns $100,000 would deduct $20,000 of that income, paying taxes only on the remaining $80,000.
It’s a welcome win for many freelancers and independent workers, given that they often pay higher taxes than corporate employees. Self-employed workers fork over a payroll tax of 15.3 percent, which covers Social Security and Medicare obligations. By comparison, corporate employees pay half that tax, with their employers covering the remaining half.
Called “one of the biggest perks in the 2017 Republican tax overhaul” by trade magazine Accounting Today, the so-called pass-through deduction was designed to provide some parity for businesses that don’t pay the corporate income tax, which the tax law sliced to 21 percent from 35 percent. Proponents of the pass-through deduction say it equalizes the tax treatment between big corporations and smaller businesses.