Self-employed people, resembling small-business homeowners and impartial contractors, are all the time on the lookout for methods to cut back their tax invoice and higher handle healthcare prices. One usually neglected possibility amongst many new entrepreneurs is a well being financial savings account (HSA).
An HSA is a tax-advantaged account that allows you to pay for certified medical bills, resembling sure imaginative and prescient care and dental companies, with tax-free {dollars}. In contrast to a versatile spending account (FSA), which is sponsored and managed by an employer, you’ll be able to arrange and handle your individual HSA, even if you’re self-employed. GoodRx, a platform for remedy financial savings, shares vital concerns to bear in mind earlier than opening an HSA by yourself.
Key takeaways:
- You may open a well being financial savings account (HSA) as a self-employed freelancer or enterprise proprietor when you’ve got a certified high-deductible well being plan.
- An HSA may help self-employed people lower your expenses on out-of-pocket healthcare bills, resembling studying glasses and over-the-counter drugs.
- Ensure you perceive HSA guidelines earlier than opening an account.
Can a self-employed particular person have an HSA?
Sure. A self-employed particular person could also be eligible for an HSA if they’ve a certified high-deductible well being plan (HDHP). This consists of Instacart customers, freelance consultants, Uber drivers, and small-business homeowners. You do not want to have an employer or a full-time job to be eligible for an HSA.
What are the necessities to open an HSA?
There are just a few guidelines that self-employed people ought to concentrate on earlier than opening an HSA. First, you will need to have a certified HDHP. Your medical health insurance plan should meet annual out-of-pocket expense limits and minimal deductible quantities. These plans usually include increased deductibles and decrease month-to-month premiums than different kinds of protection.
In case your HDHP qualifies, it’s a must to be certain that you meet different necessities. Listed below are just a few of the HSA {qualifications} outlined by the Inner Income Service:
- You haven’t any different well being protection besides sure disregarded protection, like dental and imaginative and prescient insurance coverage.
- People enrolled in Medicare usually are not allowed to contribute to an HSA.
- Dependents on another person’s return might not take the deduction.
- You may have HDHP protection on the primary day of the final month of the yr to fulfill the last-month rule. That is December 1 for a lot of self-employed people, whose insurance coverage plan yr usually begins on January 1.
Starting January 1, 2026, the eligibility guidelines for well being financial savings accounts (HSAs) will increase. Underneath the One Large Lovely Invoice Act (OBBBA), bronze and catastrophic Reasonably priced Care Act (ACA) market plans will likely be reclassified as qualifying HDHPs. This transformation will make it simpler for extra self-employed people to profit from the tax benefits of an HSA with out having to change to a conventional HDHP.
How do you open an HSA?
If you happen to meet the {qualifications} to open an HSA, you’ll have to discover a custodian or an administrator. This is usually a financial institution, a credit score union, an insurance coverage firm, or a brokerage authorised by the IRS. A number of issues to think about when opening an account are:
- What are the administration charges?
- Is there a minimal greenback quantity to open the account?
- Are there funding choices?
- Is there a minimal money account stability wanted earlier than I can make investments my funds?
- How a lot are the funding charges?
- Will I get a debit card or should submit receipts for reimbursement?
As a sole proprietor, you’ll not have an employer contributing in your behalf or overlaying administrative charges. Do your analysis and ask the best questions to make sure that the HSA meets your wants. You may examine HSA suppliers on-line that will help you make the perfect choice.
Sole proprietors vs. conventional workers
The HSA {qualifications} for a conventional worker and a sole proprietor are the identical. However there could also be a distinction in making contributions to the account.
Historically, an worker tells their employer how a lot they wish to contribute to their HSA. An employer can also contribute cash to boost worker advantages. The quantity contributed by an employer and worker should not exceed annual limits. The payroll division will deduct cash out of your paycheck to fund the HSA. That is known as a pretax contribution. Staff can contribute cash to their HSA earlier than their earnings is taxed. This could cut back your taxable earnings and prevent cash throughout tax time.
Being an entrepreneur can present extra freedom, however it additionally comes with extra duty. A sole proprietor has to arrange their very own HSA contributions. You may switch cash out of your checking account to your HSA everytime you wish to. Many self-employed people make after-tax contributions to fund their HSA. This offers a chance to declare a deduction whenever you file your tax returns.
How a lot can I contribute to my HSA?
Your HSA contribution limits depend upon whether or not your well being plan has particular person or household protection. Different variables that have an effect on how a lot you’ll be able to contribute are:
- Your age. In case you are 55 or older, you’ll be able to contribute an extra $1,000 to your account.
- The date you turn into an eligible particular person. If you happen to qualify to make HSA contributions by December 1, chances are you’ll be eligible to contribute the utmost quantity primarily based on the last-month rule.
- The date you cease being an eligible particular person. You can’t make deductible contributions for any month wherein you didn’t meet HSA necessities.
The contribution limits for 2025 are $4,300 for particular person HSA plans and $8,550 for a household plan. In case you are 55 or older on the finish of the tax yr, you’re eligible to make a catch-up contribution of $1,000. You may have till the tax deadline of the next yr to make your contribution. Meaning you’ll be able to contribute to a 2025 HSA till April 15, 2026, except the tax-filing deadline modifications.
Listed below are the utmost HSA contribution limits for 2025 and 2026:
What are the advantages of getting a well being financial savings account should you’re self-employed?
An HSA is a monetary instrument that you just personal, saves you cash, and offers tax incentives. Listed below are some extra advantages that may turn out to be useful for self-employed people:
- The contributions keep in your account till you utilize them.
- You aren’t required to contribute a minimal quantity.
- You may make investments the funds.
- It’s possible you’ll use funds for certified medical bills.
In contrast to a versatile spending account, which requires you to make use of or lose the cash you’ve saved, your HSA {dollars} roll over yearly till you utilize them. You aren’t penalized if you don’t contribute to your account. There isn’t a minimal contribution annually, however there’s a cap on the quantity you’ll be able to contribute. You may take advantage of your HSA contributions by investing your cash. As your cash grows, you’ll have extra money accessible to fund future medical bills.
An HSA pairs nicely with HDHP protection as a result of it covers certified bills you incur earlier than assembly your deductible. This consists of however shouldn’t be restricted to:
For a full checklist of certified bills, try IRS Publication 502. The CARES Act added over-the-counter remedy and menstrual merchandise to the checklist.
What are the downsides of an HSA?
HSA perks go solely up to now should you don’t know the way to totally use them. Listed below are some potential downsides that you need to contemplate, together with:
- Insurance coverage plan necessities: Solely people enrolled in a certified HDHP can contribute to an HSA. With one of these plan, you’ll have to pay in your healthcare bills out of pocket till you meet your deductible, which will be 1000’s of {dollars}.
- Annual contribution limits: There’s a cap on how a lot you’ll be able to contribute to an HSA yearly. If you happen to contribute past the bounds, you can face a 6% extra contribution penalty.
- Spending restrictions: Your HSA is used to pay for certified medical bills. If you happen to spend your HSA {dollars} on non-qualified bills, you’ll owe earnings tax on the distribution. Additionally, you will face a penalty if you’re beneath 65.
- Funding dangers: If you happen to make investments the funds in your HSA, your funding might lose worth if market circumstances usually are not favorable.
- Account charges: Relying in your HSA supplier, you could have to pay charges for companies resembling account upkeep, investments, transactions, and paper statements.
- Ineligibility with Medicare: You may now not contribute to an HSA after you enroll in Medicare. However you’ll nonetheless have the ability to use the funds in your account to pay for certified medical bills.
The underside line
Self-employed people can contribute cash to an HSA and use the funds to pay for certified medical bills. If you wish to open an account, be sure to have a qualifying well being plan and perceive HSA guidelines. You also needs to inquire in regards to the account necessities to make sure you’re not confronted with any sudden charges. An HSA will be very useful to self-employed people, however it’s vital to do your analysis to find out if it’s the perfect account in your wants.
This story was produced by GoodRx and reviewed and distributed by Stacker.
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