There’s more to compensating your nanny than simply writing a check for her caregiving services once every two weeks. For instance, did you know that you can provide health insurance benefits to your nanny tax-free?
Although the Affordable Care Act has changed many aspects of income tax legislation, one thing is still certain—employers with household help can cover the cost of their employees’ health insurance policies without increasing their taxes. However, as with most tax laws, there are various caveats.
If you employ only one household employee, the easiest thing to do is have your nanny purchase a policy from any insurer. Subsequently, the amount of any reimbursement you give her for all or part of the monthly premiums will be tax-free, meaning both the employer and employee do not pay taxes on that amount.
If you employ two or more household workers: You must purchase a group policy through the Small Business Health Options Program (SHOP) in order for your contribution to qualify as non-taxable in the eyes of the U.S. government.
If you choose to purchase a policy through SHOP, you may be eligible for an additional tax break through The Credit for Small Employer Health Insurance Premiums, which provides a credit of up to 50% of every dollar contributed as long as the family pays for at least half of the employee’s premium, the average wage for all employees is less than $50,000 per year and the policy is purchased through SHOP.*
Employers with only one employee may also set up a group policy through SHOP to qualify for additional tax credit, but keep in mind that there is an administrative cost to set up and manage the SHOP account.
If you’ve been considering providing health insurance as a benefit to your nanny, now is the time—she’ll need a policy before the open enrollment in the Health Insurance Marketplace ends on February 15th.
For more information and help navigating through the tax regulation labyrinth, we recommend you contact Breedlove and Associates for additional clarification on your family’s specific situation.
*Source: Breedlove and Associates