HSAs for Freelancers

Vicky Warren
April 3, 2019
2 min read

HSAs are a great way to save for healthcare costs and are an excellent option for freelancers. Contributing to an HSA as a freelancer is pretty comparable to those with a 9-5 job, with a few minor exceptions.

The freelance life offers many benefits, you can set your hours, choose your projects and love your work. In addition to the freedom the lifestyle offers, you have to take care of some matters an employer usually does, such as healthcare.

Healthcare is a reality for everyone, and the associated costs are no laughing matter. That said, it’s essential to have a clear plan for how you’ll handle your healthcare so you can enjoy your work.

The silver lining is that there are several ways to help offset the cost of healthcare, such as Health Savings Accounts (HSAs). These types of accounts let you save money specifically for healthcare costs.

Contributing to an HSA as a freelancer is pretty comparable to those with an 8 – 5 job, with a few minor exceptions.

Do You Have a High Deductible Health Plan (HDHP)?

Obtaining health insurance when you’re self-employed can be a bit of a hassle. You can buy health insurance from agencies or log on to places like Healthcare.gov to find a plan that works for you.

When you’re looking for plans, you’ll want to determine if it is HSA-eligible. Regardless of if you’re opening a new HSA or using one you already have, the new insurance plan must be HSA-eligible.

You’ll need to meet the following criteria to participate in an HSA:

You don’t have other health insurance coverage such as Medicaid, Medicare or FSA coverage through your spouse’s plan

You’re enrolled in an HSA-qualified HDHP

You can’t be claimed as a dependent on anyone’s tax return

HSA Contribution as a Sole Proprietor

Because you file taxes on a personal tax return, you’re treated like you’re making HSA contributions on your own. You can deduct some of those contributions on your personal income tax return.

As long as you made a profit during the tax year, you’re eligible to file the deduction. The maximum for the tax year 2019 is $3,500 for individuals and $7,000 for those with families. If you’re over 55, you can add an extra $1,000. To note, you can’t put more than your net self-employment income in your HSA.

Here’s where HSAs for the self-employed change a little bit. For traditional employees, HSA contributions are made on a pre-tax basis. When you’re self-employed, it doesn’t work the same. You would contribute after-tax dollars to your HSA and then make a line item deduction on your Schedule C. This can be a little tricky, so make sure to talk with a tax professional to make sure you get the numbers right.

HSAs with an LLC

If you’re a single-member LLC, you’ll treat your HSA much the same as a Sole Proprietor does.

If you have employees, you may be able to implement what is known as a “cafeteria” or “125” plan that allows employees to make pre-tax contributions. Unfortunately, owners cannot participate in these plans.

Owners can contribute after-tax dollars to their HSA that are counted toward their personal taxes. However, you or your spouse (partner) can take a deduction on your personal income tax return, as long as you make a profit. Whatever you contribute to your HSA will reduce your adjusted gross income.

How Do I Set up an HSA?

HSAs are easy to set up as long as you meet the criteria. You can set up an account through a bank or other financial institution such as Lively.

HSAs are a great way to save for healthcare costs and are an excellent option for freelancers.