There are a lot of advantages to being a freelancer rather than working full-time for a business. But, one of the main disadvantages is not having the benefits that regular employment provide, specifically health benefits. However, there are plenty of unique options for freelancers who don’t want to give up the lifestyle and freedoms of working for themselves, including health savings accounts, or HSAs.
Health savings accounts were designed for people who still have health insurance but who have very high deductibles, which can make using the insurance plan difficult financially. HSAs basically fill in for services that are not covered by these high-deductible health plans, giving freelancers more of an ability to take care of their health needs. HSAs work through contributions which are made by the freelancer, creating a “savings account” that can be used as needed.
Like any financial strategy, HSAs come with rules and guidelines to ensure that they are used correctly. Additionally there are some huge financial advantages to using a HSA, making them even more appealing for freelancers interested in keeping more of the money they make. 1. HSAs are limited to a maximum contribution each year. For individuals, that amount is $6,900 For family coverage, the max amount is $15,800. (This number varies slightly from year to year).
2. HSAs can only be used for qualified medical expenses, including medical care, dental visits, vision appointments, and prescription drugs.
3. HSAs can only be created by a freelancer who already has an existing HDHP (high-deductible health plan).
4. HSA funds can be used to cover the portion of a medical expense an individual is responsible for out-of-pocket after insurance has covered the rest.
5. Opening a HSA can be done at most financial institutions.
6. Other eligibility requirements for a HSA include being an eligible taxpayer according to the IRS. Usually this means that you have a qualifying HDHP, don’t have additional health coverage, are not enrolled in Medicare, and can’t be claimed as a dependent on anyone else’s tax returns.
One of the biggest advantages to using a HSA, besides having out-of-pocket medical expenses covered, is that contributions to the account are made with pre-tax income. This means that when it comes time to file your taxes, your total taxable income will be less, which means you’ll have less liability (and will usually pay less money on your taxes). In other words, HSA contributions are 100% tax-deductible, making them a smart move for savvy freelancers.
Of course, there are some disadvantages to HSAs, which is why you should consider the responsibilities of having this type of account before you set one up with your financial advisor