Real Money: Self-employed contractors, FSAs and parenting

There's no doubt that the gig economy is growing. About 11% of U.S. workers are full-time contractors, according to Nation1099. Freelancers are also on the rise. Popular freelancing platform Upwork's report that 57.3 million people in the U.S. freelance full time.

And one of the reasons for this steady surge toward home-based employment? Parenting and child care, and the ability to make your own hours to accommodate for a growing family's always-hectic schedule.

A quick note on freelancing vs. contracting

A few weeks ago, we discussed the availability of FSAs to freelancers. But there's an important distinction to be made between freelancers and contractors. Freelancers work for themselves, often doing work for various clients simultaneously. A contractor usually has a signed contract with one client to perform a specific role for a set period of time.

If you're a contracted worker, chances are, you enjoy the freedom that comes along with working when you want, where you want, or even moving on when the work no longer interests you.

Let's start with the answer you want

Unfortunately, the IRS says that self-employed workers aren't eligible for FSAs. I know, that hurts a bit. If you have a spouse that's eligible for an FSA through their employer, they should consider opening one, since you and any dependent children are also eligible to use those funds.

There are other options (especially if you have children)

There's good news for those with children: If your spouse can give you access to an FSA, you can use your FSA to pay for approved over-the-counter medical items like contact lens solution, nasal spray, breast pumps and accessories, and even copays. Items containing an active medical ingredient like acne medication, sleep aids, and allergy medication are also eligible.

You can also consider a dependent care FSA, which can be used to pay for childcare for a child 12 and younger. Specifically, summer camps, preschool tuition, and daycare to name a few.

Finally, you might want to consider opening an HSA if you're self-employed and currently enrolled in a high deductible health plan (HDHP). HSAs are similar to FSAs in that they cover medical expenses like OTC medicine, prescriptions, and copays.

Worth notingGenerally, you can't have both an HSA and an FSA (with limited exceptions).

The child tax credit (CTC) and the additional child tax credit (ACTC) can also help offset the cost of childcare. These tax credits are up to $2,000 per qualifying child. The child must be under 17, have lived with you for at least half of the tax year, and be a U.S. citizen.

Worth notingIf you feel you have been improperly classified as an independent contractor and should be an employee, you may be eligible to change your status with your employer and gain access to benefits like an FSA.)

So be sure to explore your tax advantaged options when it comes to defraying the cost of childcare. Because let's face it: Even home-based workers need a little help sometimes.


Whether you budget week-to-week, or plan to use your FSA for bigger things, our weekly Real Money column will help you maximize your flex spending dollars. Look for it every Tuesday, exclusively on the Learning Center. And for the latest info about your health and financial wellness, be sure to follow us on FacebookInstagram and Twitter.

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