Self-Employed and Considering an HSA?
According to the US Bureau of Labor and Statistics, over 15 million people — 10% of the workforce — are self-employed. A very large number, this group thinks differently than their company employee counterparts, often because they must. For instance, being self-employed generally means knowing income, expenses and, yes, taxes, much more closely than those who rely on their employers for such matters.
They probably know which receivables are outstanding (and what a receivable is!), how certain expenses impact cash flow and that not every receipt receives equal treatment under GAAP accounting and tax rules. Becoming self-employed means mastering cash flow, while growing a business.
Further, for many this journey highlights the treatment of health care under the tax code. There are tax credits, expenses, insurance markets and coverage plan requirements (with their own categories of costs), but often and in the end, it is about dollars spent today, tomorrow and in the years to come.
This hyper-awareness can make the self-employed great candidates for a High Deductible Health Plan (“HDHP”) and Health Savings Account (“HSA”) combination. The qualifications for deducting health insurance are beyond the scope of this post (details for 2018 can be found in the instructions themselves, here), but recognizing this benefit has tax implications, and therefore bottom line impact, should prepare them well for the benefits of an HSA.
If you follow the bouncing ball through the annual tax filing — and many self-employed will, out of habit, if not also necessity — you’ll see just a few lines above the deduction for self-employed health insurance (line 29 in 2018 draft IRS Form 1040 Schedule 1) is the deduction for an HSA (line 25). So in a sense, then, the self employed — again, more so than most — will be aware of the costs and tax savings of an HDHP/HSA combination on an individual return. They will be faced with it each filing season.
We’ve written elsewhere about the advantages of HSAs (here, here and here). While those same advantages apply to self-employed, choosing the right plan that enables access to HSAs is level of freedom — and sometimes nervousness -unfamiliar to employees, whose employers generally simplify the choices to two or three options.
Happy Savings, you self-employed out there.
Aaron Benway, CFP, EA
Aaron is a Certified Financial Planner (CFP) and IRS Enrolled Agent (EA). He co-founded HSA Coach, a digital tool to educate consumers on HSAs, track health expenses and other documents, and provide individual financial calculators, to help consumers get the most from their HSA and other savings. To help individuals directly with their financial planning and wealth management requirements he founded AB Financial Planning. Prior to co-founding HSA Coach, Aaron was the CFO of ventured backed fintech startup HelloWallet, acquired by Morningstar. Aaron has an MBA from Harvard Business School and is a graduate of the US Naval Academy.