The Affordable Care Act requires almost all citizens to carry health insurance. And while household employers are not required to provide health insurance for their nanny or senior caregiver, you can choose to contribute to your nanny’s health insurance policy in the following four ways:
- Make payments to it as part of payroll
- Set up an ICHRA for your employee
- Set up a QSEHRA for your employee
- Establish a group policy through SHOP
Each of these options has a different procedure depending on the level you want to be involved in providing health insurance to your nanny or caregiver(s). However, no matter what you choose, adding health insurance to your caregiver’s payroll is a strategic way to enhance their compensation package while decreasing your tax liability at the same time.
Option #1: Contribute directly to your caregiver’s individual health insurance policy
If you only have one household employee, you can contribute to your caregiver’s health insurance policy premiums and treat that money as non-taxable compensation. That means the amount you pay won’t be subject to taxes for both you and your caregiver.
“Families who choose this route will save about 10% on the amount they contribute while their caregiver will save approximately 15-20%,” says Desiree Leung, vice president of operations for Care HomePay. “So if you assign $150 of your caregiver’s wages per month to health insurance, you’ll save about $180 annually in taxes and your caregiver will save around $300.”
If you choose to go this route, you should pay the insurance company directly, if possible. This will eliminate any possibility of the money being used for other purposes and will make life much easier in the event of an audit. If that’s not possible, have your caregiver make a copy of their health insurance invoices.
Option #2: Contribute to your caregiver’s Individual Coverage Health Reimbursement Arrangement (ICHRA)*
Families may reimburse their caregiver for qualified health expenses and/or their health insurance premiums through an Individual Coverage Health Reimbursement Arrangement (ICHRA). There is no cap for how much families can contribute to an ICHRA, but the arrangement must be offered to all employees who are enrolled in a qualified individual health plan. Families can also choose to offer different reimbursement amounts to each employee they have and employees have the option to opt-out of the ICHRA if they choose.
Our partner, Take Command Health, can help you set up an ICHRA if you’re interested in this type of benefit for your caregiver.
Option #3: Offer to set up a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)*
You can offer a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) to contribute up to $6,150 annually per employee to their health insurance premiums and qualified health expenses tax-free. If you have multiple caregivers, they must all have the ability to accept the arrangement, but they’re not obligated to do so.
You must decide before the calendar year begins how much you are willing to contribute and then will reimburse your caregiver for their qualified expenses. Your caregiver(s) must provide receipts to receive reimbursement and the amount you decide to contribute will be reported on your caregiver’s W-2. Learn more about QSEHRA.
Option #4: Enroll in a health insurance policy through the Small Business Health Options Program (SHOP)*
Lastly, you can establish a group policy through SHOP via the federal marketplace, as long as the policy is offered to all your employees. If you pay for at least 50% of your caregiver’s health insurance premiums, you can qualify for the Health Insurance Tax Credit for Small Employers if the average wages you pay your caregiver(s) does not exceed $62,000. The tax credit maxes out at 50% of the amount you contribute and decreases as the average annual wages you pay to your caregiver(s) increases toward $62,000.
Note: If you live in a state that sets up their own health insurance marketplace, they may not allow you to set up a policy through SHOP. Please visit the SHOP website for more information.
If you’d like an estimate of your savings by including health insurance as part of your caregiver’s compensation package, please give us a quick call at (888) 273-3356.
* Please note: Any employer who offers health insurance to their employee through a group health insurance policy or a reimbursement plan via QSEHRA or ICHRA will need to remit a small fee to the IRS annually for each employee receiving coverage. Employers must complete Form 720, Part II, and send to the IRS, along with payment. The payment is very small (for 2022 coverage due in 2023, it was only $3/employee).
Even though Form 720 is a quarterly form, you only need to complete this form annually to send to the IRS if the PCORI fee is the only fee they owe on the form. The due date for the Q2 annual submission is 7/31 every year.
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