If you are an entrepreneur or a gig worker, you need to know how to save as much as humanly possible on taxes. One of the biggest secret weapons you can use is an HSA, also known as a Health Savings Account.
Let’s dig deep on this program and why you might want to get in on it ASAP.
What is an HSA?
A Health Savings Account is a special savings account that you can open up with your pre-tax dollars, thereby lowering your taxable income. This account is designed to help you take care of your health needs that aren’t covered by insurance.
The only thing that you can’t use an HSA to pay for are your insurance premiums. However, they offer a lot of opportunities for health spending. For example, HSA’s allow you to spend money on the following:
- Copays
- Acupuncturists, psychiatrist, specialized therapists, and alternative medicine practitioners
- Scales
- Over-the-counter drugs like allergy pills or sinus relief sprays
- Pregnancy-related gear like breast pumps or nursing assistance stuff
- Non-OTC items like medicated toothpaste or specialty
- Genetic testing
- Long-term care like nursing homes or hospice
- Smoking cessation patches
- Acne medication
- Eyeglasses
- Weight loss medications, if deemed medically necessary
You can also order stuff from the HSA Store, an IRS-approved healthcare store. Sadly, I checked and gym memberships are not HSA-approved.
Who qualifies for an HSA?
So, it sounds great but you have to recognize what this means for your income and your healthcare. In order to have an HSA, you need an HSA-eligible (also known as High Deductible) plan.
- You must have a High Deductible Health Plan.
- You cannot be a dependent on other peoples’ taxes.
- You cannot already have an Flexible Spending Account from an employer.
- Your spouse cannot have an FSA or an HMO plan, either.
There are a bunch of small qualifications, but the basic gist is that you need high-deductible insurance and you also need to make sure your spouse isn’t on an HMO.
How much can you contribute to your HSA?
The IRS sets up maximum contributions. In 2024, it was $4,150 for an individual and over $8,000 for a family. So, that can knock serious change off your tax return once tax time is here.
Does an HSA make sense for you?
Every single person is different. If you are looking for lower insurance premiums but also have a lot of demands for your healthcare gear or love to go to your local chiropractor, you’ll love this plan. It eases up your healthcare costs and also makes your taxes lower.
Personally, I’ve decided to get more hardcore into my HSA savings this year and next. It makes sense for me because I love going to my chiropractor and I also am going to be going for intense PTSD therapy. Those aren’t fully covered by my insurance.
I also rarely go to a traditional doctor without being forced to and heavily sedated, so it’s not like I need a low-deductible HMO. While it’s not for everyone, I definitely found it to be the right pick for me and many around me.
Besides, that money never expires, unlike FSAs. So, if you need to lean on that cash in 2050, you can. And that brings me peace of mind.
Author’s Note: This article was primarily sourced from Healthcare.gov’s website.
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