Consider a self-employed entrepreneur who racked up thousands of dollars in medical bills after a visit to the emergency department due to lack of employer-sponsored health insurance. Or the entrepreneur whose business never got off the ground—not because they lacked skill or demand, but because the burden of complicated taxes or owing money they didn’t expect made them walk away before they could even get started. This sentiment underscores how current policies can deter potential entrepreneurs from leaving traditional employment.
Despite all of this, in recent years, solopreneurship—the practice of running a business without a team or employees—has grown drastically, alongside general entrepreneurship. The U.S. averaged 430,000 business applications per month in 2024. That’s 50% more than in 2019. And according to the Small Business Administration, the number of non-employer businesses has grown 84% since 1997. There are 28.5 million non-employer businesses in the U.S., representing roughly 82% of all small businesses in the country. This includes freelance writers, designers, consultants, e-commerce entrepreneurs, influencers, virtual assistants, and photographers.
Despite having no employees, solopreneurs face many of the same challenges as small business owners: funding, healthcare, taxes, and compliance. Here are three policy areas and practices they can put into place to ensure their long-term success.
1. Access to capital
Solopreneurs are more likely to use personal capital to start and sustain their business. Unlike larger companies that can attract investors, solopreneurs often struggle to secure significant external funding due to their smaller scale. And in many cases, they are simply unaware of the resources available to them. There are a few possible solutions to addressing this challenge.
First, government can increase the support for and awareness of tax-deductible business loans, which allow solopreneurs to deduct interest on personal loans used for business expenses. This includes traditional business loans like SBA loans, equipment financing, and business lines of credit. It also includes personal loans and home equity loans used for business, such as a solopreneur taking out a $20,000 personal loan to buy equipment and cover marketing costs. If the annual interest paid on the loan is $2,000 and the entire loan is used for business, the full interest payment can be deducted from taxable income, reducing overall taxes owed.
Another option is a phased reduction of the self-employment tax. One of the biggest financial burdens for new solopreneurs is the self-employment tax, which is 15.3% (covering Social Security and Medicare) on net earnings. The government could implement a phased reduction of self-employment taxes for new solopreneurs, gradually lowering the self-employment tax burden for individuals just starting their own business. This approach could provide financial relief and additional capital during the crucial early stages of business growth. It also gives solopreneurs time to establish consistent earnings before facing full tax liability.
2. Healthcare and social safety net security
Healthcare, retirement savings, parental leave—these are all benefits currently tied to a person’s job. This has been described as “job lock” as it suppresses entrepreneurship, innovation, and ultimately economic growth. Despite this, we are still seeing a massive rise in solopreneurship— meaning there is a large segment of the workforce that has to navigate these critical social safety net programs on their own.
The first solution is to reform the current health reimbursement arrangement (HRA), including an individual coverage HRA (ICHRA) and a qualified small employer HRA (QSEHRA). While they were designed as a flexible way for small businesses to help employees access health insurance, the system has major flaws—one is that they are not currently available for self-employed individuals. These individuals struggle to deduct healthcare costs because they lack employer-sponsored insurance. HRA reform could allow them to use pre-tax dollars for health expenses, reducing their taxable income. HRA reform could be a game-changer for solopreneurs and S-corps, making healthcare more accessible, affordable, and tax efficient.
Another potential solution is to exempt health insurance premiums and retirement savings contributions from self-employment tax calculations. Right now, solopreneurs pay self-employment tax on all earnings, including money used for health insurance and retirement. Creating this exemption would lower the overall tax burdens on these individuals without reducing the benefits.
3. Compliance and tax support
Running a business as a solopreneur is extremely rewarding when it comes to flexibility, being your own boss, and doing what you love. But it also comes with its own set of compliance and tax challenges. And while there are some tax advantages to working for yourself that are not available to those who work for others, it can get complex.
Business owners need to be aware of different tax deadlines, eligible deductions, and how to efficiently structure their finances to benefit from lower tax rates. This will always be important, but there are proposals making their way through Washington to make it easier on solopreneurs.
Right now, anyone who works for themselves faces the burden of directly paying their estimated taxes on a quarterly basis and managing a lot of the calculations on their own. There are also long-term economic security implications of not remitting payroll taxes, which reduces the Social Security benefit, plus Medicare, to a certain extent. Because of this, many self-employed workers—solopreneurs, freelancers, etc.—would prefer to have taxes withheld from their earnings instead. This would reduce the risk of calculation errors and help them avoid penalties.
Businesses that pay self-employed individuals for their work could withhold the taxes by adding their withholding to the taxes they already pay for their employees. This would allow solopreneurs to better manage their cash flow and alleviate the frustration of having to estimate withholdings, save for future tax payments, and navigate those payments four times a year.
The rise in solopreneurship and self-employment isn’t just a trend; it’s a fundamental shift in how people choose to work these days. Supporting entrepreneurs in their business endeavors and reducing complexities for them would encourage more small business creation, which ultimately strengthens and lifts the overall economy.
Tomer London is cofounder and chief product officer of Gusto.
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