Health insurance and retirement in your freelance rate
Employers pay or subsidize health insurance and retirement plans. As a freelancer you fund both yourself, so they belong in the revenue you plan for.
Why they raise your rate
Premiums and retirement contributions come out of your take-home pay budget before you spend a dollar. To keep the same take-home pay, you must earn them on top. They also lower your income tax, which cushions part of the cost.
Effect on the hourly rate
Health insurance of $450 and retirement of $500 per month lift the rate from $76.74 to $89.05.
Default values, only health insurance and retirement changed:
| Health insurance per month | Retirement per month | Hourly rate |
|---|---|---|
| $0 | $0 | $76.74 |
| $450 | $0 | $82.57 |
| $450 | $500 | $89.05 |
| $900 | $500 | $94.88 |
| $900 | $1,000 | $101.35 |
How the deductions work
- Self-employed health insurance deduction: premiums for you, your spouse and dependents can reduce your income tax. It does not reduce self-employment tax and cannot exceed your net profit.
- SEP IRA and Solo 401(k): contributions reduce your income tax. Annual limits depend on the plan and on your profit; see IRS Publication 560.
- Other savings: an emergency fund or brokerage account does not reduce tax.
Frequently asked questions
Should health insurance be included in my freelance rate?
Yes. Premiums are a real cost of running your business and of staying insured. The calculator adds them to the revenue target and treats them as the self-employed health insurance deduction.
Do retirement contributions lower my hourly rate?
No, they raise it, because you must earn the contribution. They lower your income tax, which softens the effect, but a dollar saved still has to be earned.