- For the self-employed person who pays at least half the cost of health insurance for an employee, the Small Business Health Care Tax Credit can be claimed. This should not be confused with the tax deduction subtracted from adjusted gross income for self-employed taxpayers who pay health insurance premiums for themselves. Instead, the health care tax credit directly reduces taxes owed.
- As part of the Hiring Incentives to Restore Employment (HIRE) Act that went into effect in March 2010, some self-employed individuals can claim a tax credit. If you hired a new employee to help you in your business venture, you may be eligible to claim what the IRS calls a business credit for "retention of certain newly hired individuals." To claim this tax credit, you must retain the new employee for a minimum of 52 consecutive weeks. The credit maximum equals the "lesser of $1,000 or 6.2 percent of wages" paid to the qualified employee. To qualify, the new employee must have been unemployed or not employed at a full-time position when you hired him.
- Self-employed individuals with paid employees may be eligible to claim a tax credit for starting a pension plan for employees. For example, self-employed taxpayers may claim a tax credit equaling 50 percent of the first $1,000 in start-up costs required to establish a Savings Incentive Match Plan for Employees (SIMPLE) pension plan. Additionally, self-employed taxpayers may claim the Retirement Savings Contributions Credit for contributions made to their own qualified retirement plan. The maximum allowable credit was $2,000 for tax year 2010. These tax credits should not be confused with the deduction from adjusted gross income that self-employed taxpayers may claim for payments to their own retirement plans.
- Self-employed taxpayers are eligible to claim the common tax credits available to all other eligible taxpayers, such as the credit for child and dependent care expenses, residential energy credits and education credits. Furthermore, eligible taxpayers, regardless of filing status and form of employment, may be eligible to claim the Earned Income Credit, if gross income levels are below certain levels. For the 2010 tax year, individuals with earned income less than $13,450 and no children were eligible. Taxpayers with three or more qualifying children could earn up to $46,500 in earned income and still qualify for a small tax credit. Whether the taxpayer is self-employed has no effect on these general credits.
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