We must decide: shall people be financially ruined by medical costs?

Since we now have a preliminary Congressional Budget Office report on the effects of the American Health Care Act, the Republican replacement for the Affordable Care Act, this seems like as good an occasion as any to address the importance of medical insurance to the construction of an economy of entrepreneurs and entrepreneurship.

Since World War II, most workers have been covered by employer-based health plans

Employer-based health insurance became widespread for a simple, stupid reason: health insurance premiums were deemed deductible from the employer's income as business expenses, but not treated as taxable income by the insurance beneficiaries. This meant, just as a dollar of tuition scholarship goes further than a dollar of room and board scholarship, employers had a huge incentive to pay their employees in the form of health insurance, rather than wages.Those group plans also provided some basic protections to the insured: community rating, so sicker workers couldn't be charged more for their plans, family coverage, so spouses and children would receive insurance through the worker's plan and, after 1985, the right to COBRA continued coverage under a group plan (with the worker paying the entire premium without employer cost-sharing).To be as clear as possible about this: there is no intrinsic advantage to offering health insurance through employers. The only reason this system exists is because wage controls during World War II could be evaded by employers who extended tax-free health insurance to their employees, and then the perpetuation of that tax regime in the following decades.

The pre-ACA individual health market was completely dysfunctional

Before the passage of the Affordable Care Act, the health care market did not adequately serve individual health insurance customers. Travel back in time with me to 2008, when the following problems were endemic among individual health insurance plans:

• Individual underwriting. If you were sick, you could not get coverage. If you had ever been sick in the past, you could be denied coverage or have your earlier condition excluded from coverage. If you forgot you had been sick in the past and didn't mention it on your application, you could suffer retroactive rescission if you became sick in the future, losing your health insurance just when you needed it most. If you were a woman, you could be charged more for the same plan.
• Lifetime limits on coverage. If you were healthy, you might get a health insurance policy with a lifetime or annual limit on coverage, so after paying your deductibles and copays, and exhausting your plan's lifetime or annual limit, you'd be left paying all your remaining bills out of pocket. This made medical bankruptcy a fact of life for many Americans.

The Affordable Care Act gives everyone access to comprehensive health insurance

Everyone picks and chooses what they want to highlight in the Affordable Care Act, or Obamacare, so I'm going to tell you I think of as the principle benefits of the Affordable Care Act:

• Employer health insurance becomes more comprehensive (this wasn't the biggest problem pre-ACA, but it's an improvement);
• Low-income people get access to Medicaid;
• The individual market is subsidized and regulated so all plans have community rating, guaranteed issue, no annual or lifetime caps on coverage, and affordable premiums.

This framework isn't perfect (if it were up to me, subsidies would be universal and paid for with modestly higher income taxes), but it is exquisitely good at what it does, and what it does is provide universal health insurance.You are free to quibble with the "value" of that insurance, free to complain about high co-pays and deductibles, free to complain about limited provider networks.But that is not the point of health insurance: the point of health insurance is to keep people from being financially ruined by medical bills, as they regularly were in the decades leading up to the passage of the Affordable Care Act.

Why would we limit entrepreneurship to the young, single, healthy, male and married?

Before the Affordable Care Act was passed, of course people did leave their jobs to start businesses. And if they were young, healthy, and male, they may even have been able to afford individual health insurance. If they were married, they could remain on their spouse's health insurance plan. If their business grew fast enough and profitable enough, they could start a group plan to insure themselves and their employees.That is not going to be enough. We need a society that doesn't just permit, but encourages entrepreneurs and entrepreneurship. And we are never going to have that society if leaving your employer to start a business exposes you to catastrophic medical debt.We know what the world looked like before the passage of the ACA. It was a world in which people would do anything to keep their jobs and access to health insurance; when they would take any job in order to keep access to guaranteed employer-based health insurance.That system never worked well, but it may have worked well enough in a world of lifetime employment for white-collar and blue-collar workers alike and in a world of relatively restrained medical costs. That's not the world we live in anymore.Access to comprehensive, affordable health insurance is the only way we can build the society of entrepreneurs and entrepreneurship that we must, in fact, build.I do not know if the Congressional Budget Office is right that 24 million people will lose coverage under the Republican replacement plan. But I do know exactly what a world looks like without access to comprehensive, affordable health insurance, because that's the world I grew up in and which I, unlike your cable TV anchor, remember perfectly clearly.

Self-employment tip #1: use your EIN for everything

I am working on a project for my beloved readers that has quickly spiraled out of control and is taking me much more time to complete than even I had contemplated. But one key point that I've learned is that as a self-employed person, you should use your Employer Identification Number, or EIN, for absolutely everything connected to your business.This may sound obvious, so I want to explain exactly why this has turned out to be so shockingly annoying.

The IRS prefers you use your Social Security number

On form W-9, the one independent contractors and self-employed people submit to their clients, you're asked for your "Tax Identification Number," which is either your Social Security Number or your Employer Identification Number:As the form helpfully explains, "However, for a resident alien, sole proprietor, or disregarded entity, see the Part I instructions on page 3."Turning to page 3, we see:"However, the IRS prefers that you use your SSN."Why does the IRS prefer that you use your Social Security Number? In order to make your life as difficult as possible.

You cannot deposit employee withholding using a personal EFTPS account

I spent 3 hours today trying to figure out how to deposit federal tax withholding for employees until Twitter user and American hero @utahshane explained: "@FreequentFlyr You're on a personal EFTPS login. Need to be on a business version to se 940, 941, etc."Since I am still boiling with rage right now, I'm going to explain how frustrating this is through gritted electronic teeth:

• EFTPS, the electronic system sole proprietors and employers are required to use to make quarterly estimated tax payments and deposit tax withheld from employees paychecks, is completely undocumented. This is the EFTPS "Help" page. This is the official IRS publication on EFTPS. This is the Payment Instruction Booklet. None of these documents explain that if you enroll as an individual you are unable to deposit taxes withheld from employee pay. None of them explain how the system actually works.
• Here is what EFTPS thinks you "Need To Know:"
• One of the things EFTPS DOESN'T think you need to know is that only certain account types can make certain kinds of tax deposits, and which account type you should enroll in.
• Finally, here are the three options you're given when enrolling:
• Is a sole proprietor a business or an individual? On the one hand, you receive business income. On the other hand, we've established on IRS documents elsewhere that "the IRS prefers that you use your SSN." If any information was provided in advance about the different account types, it would be easy to decide. Instead, you're left to flip a coin.

I want to make clear that I did not "accidentally" or "mistakenly" set up my EFTPS account as an individual. I randomly set up my account as an individual because the IRS provides no guidance or instructions whatsoever about how you should set up your EFTPS account.

Why isn't this easy?

Since I'm seething with rage you probably don't want to ask me any question beginning with "of course you're supposed to enroll as a business." As I said above, this is one tiny corner of a larger project I'm working on for you, and it took me hours of searching IRS documents, forums, and finally begging for an answer on Twitter before I found the answer to this one tiny question.Do we want people to start businesses or not? Do we want people to hire employees or not? If we do, this simply cannot be the way we organize the most basic government functions, like collecting and paying employment taxes!

Yes, you can pay to do this

Of course you can buy payroll software, hire a payroll firm, or sign up for an "exciting new" option like Zenefits to take care of this kind of payroll administration for you.But what does it say about our system of market capitalism that we erect barriers to hiring that even reasonable people (with plenty of time on their hands) are unable to surmount without paying third parties to handle them?One very strong tendency in American life I fight against is the impulse to treat starting a business as some kind of risky, complicated endeavor you should only undertake when you're already rich and comfortable. When we say as a culture that the first thing you should do when you start a business is pay strangers to manage your payroll, we're confirming that impulse and saying that starting a business isn't for you or people like you.Much, much more on this subject to come. But for now, just remember: fuck the IRS and their preferences, and use your EIN for everything connected to your business.

Yes, you should declare all your self-employment income

Between this blog and my travel hacking blog, at least 90% of my income comes from self-employment. I'm not even paid through a partnership or S corporation; I just get deposits into my checking account.If you're self-employed, it's possible your income isn't "tracked" in the way traditional wage income and some contractor income is, with the IRS receiving directly from your employer information about the amount paid and any taxes withheld. While digital employment platforms like Airbnb and Uber track income and report it to you and the IRS each year, self-employment marketplaces like Craiglist don't.That gives rise to the natural temptation to underreport or not report your income from self-employment in order to avoid the onerous self-employment tax. Here's why that's a terrible idea.

The self-employment tax is a pain in the ass

If you're self-employed, the self-employment tax is 14.13% of your net self-employment income (for reasons I cannot begin to fathom, it is technically 15.3% of 92.35% of your net income). Most self-employed people after their first year of self-employment have to pay estimated taxes throughout the year, confusingly called "quarterly" estimated payments despite the fact that they are not due quarterly. Instead, they're due on April 15, June 15, September 15, and January 15 (for the final four months of the previous year).Estimated tax payments are collected through the very primitive EFTPS site, or there are a number of vendors that allow you to make estimated tax payments with credit and debit cards for a fee.Importantly, the self-employment tax has nothing to do with the federal income tax, except that your self-employment tax obligations and payments are reconciled each year on IRS form 1040, along with your other tax obligations. Even very-low-income self-employed people owe the self-employment tax, although refundable credits may offset some of the self-employment tax when you reconcile them each year.

Self-employment taxes protect you from long-term disability

Each year in which you report earned income to the IRS, you earn work credits in the Social Security system. These entitle you to retirement benefits (more on that in a moment) but even more importantly for young and low-income workers, they entitle you to long-term disability benefits. You can earn up to 4 work credits per year (in 2016 you needed $5,040 in earned income to earn all 4), and depending on your age you need between 6 and 40 work credits to qualify for Social Security Disability Insurance. There are restrictions on how recently work credits have to be earned as well, which you can read more about here.While older and higher-paid workers may have savings or private disability insurance to fall back on, for young and low-income people who are permanently disabled Supplemental Security Income and Social Security Disability Insurance are the two federal programs which provide cash income support. The key difference between the two programs is that Social Security Disability Insurance is only available if you've earned enough work credits to be considered "insured" by the Social Security system. It's much more generous than Supplemental Security Income, which is a means-tested program with strict limits on income and assets.The sooner you start working, the sooner you're considered insured by the Social Security system. Unfortunately, many work-study positions at colleges and universities are not subject to Social Security taxes, and do not earn work credits towards insured status if you are enrolled full time. However, if you're self-employed while enrolled in school, or do covered work during the year at another employer, your self-employment or FICA taxes will earn work credits towards insured status.

Self-employment taxes buy a good, cheap retirement annuity

Paying 14.13% of your income in self-employment taxes doesn't feel great, but it's one of the best investments ordinary people have available. There are a lot of intricacies in the system, but the logic of Social Security retirement benefits is simple and I want to lay it out as simply as possible. All the following figures are in 2015 dollars and are adjusted annually for inflation:

• The first $1,451 in self-employment taxes you pay each year buys a lifetime annuity of $22 per month starting at your full retirement age (67 for most younger workers). If you work for exactly 35 years, make $10,272 per year and retire at your full retirement age, you'll have paid $50,785 in self-employment taxes and earn a monthly benefit of $770 until you die.
• The next $7,292 in self-employment taxes you pay each year buys a lifetime annuity of $39 per month, again starting at your full retirement age. A 35-year work history of $61,884 per year in earnings will have paid $306,047 and earn a monthly benefit of $2,146.
• Finally, each additional $1,000 in self-employment taxes (on $7,077 in additional income) you pay each year buys an additional lifetime annuity of $2.53 per month.

All of these calculations have been performed on self-employment taxes, but the logic is identical for employees, who only "see" half the taxes withheld from their income; their employer "pays" the other half.Using this math, I know that since I paid about $3,100 in self-employment taxes in 2016, I'm entitled to an annuity of $31 per month starting at age 67 ($22 for the first $1,451 and $9 for the next $1,649). If my income keeps up with inflation, and I continue to dutifully pay my self-employment taxes, at age 67 I'll have paid $108,500 for a $1,085, inflation-adjusted monthly annuity.

You have a stake in this system

Social Security disability and retirement benefits are the cornerstones of the American welfare state: they do more than any other program to support the poor and disabled, particularly among the elderly. But for a variety of historical and cultural reasons, they have to be "earned" through the regular payment of FICA taxes, in the case of employees, and self-employment taxes in the case of the self-employed. By reporting your self-employment income you may have less disposable income, although you may not if reporting your self-employment income triggers refundable tax credits like the Earned Income Credit. However, it entitles you to participate in these bedrock institutions that protect you and others from sickness and poverty.The more you know about and participate in the Social Security retirement and disability system, the better equipped you are to defend it from its many enemies, whose agenda of reducing benefits and increasing poverty among the elderly is enabled by widespread ignorance about the program's purpose and benefits.For more on this topic, I recommend the excellent Social Security Works! by Nancy Altman and Eric Kingson.