Self Employed
Health savings accounts for the self-employed
Between doctor visits and prescription drugs, rising medical costs can impact the financial health of your business. A health savings account, or HSA, can help the self-employed offset their medical expenses and reap significant tax benefits.
What is a health savings account?
A health savings account is a tax-advantaged savings account that is used for qualified medical expenses. These include doctor or hospital visits, co-pays or prescription drugs.
If you're under 65, you face a penalty for using HSA funds for non-qualified expenses. When you turn 65, that penalty no longer applies. See IRS Publication 969 for more information on qualified medical expenses.
You can open health savings accounts for the self-employed with any qualified HSA trustee. But you are only eligible to open an HSA if you meet the following criteria:
- You are enrolled in a high-deductible health insurance plan (HDHP)
- You're not enrolled in other medical coverage‚ this includes Medicare
- You can't be claimed as someone's else dependent on a tax return
Why are only high-deductible plans eligible for HSAs? As a high-deductible plan enrollee, you take on a larger medical cost burden than someone with a low- deductible plan.
Fortunately, high-deductible plan premiums are also generally less expensive. You can check with your insurance provider to see if your insurance plan is HSA-eligible. Regardless, don't forget that you can often deduct the costs of your insurance premiums, too.
