Many employers understand that key benefits such as employer paid health insurance is an important employee recruitment and retention tool.
- If you only have one household employee, you may reimburse health insurance premiums obtained in the individual marketplace on a tax free basis.
- If you employ 2 or more household employees, reimbursements for individual insurance policies is taxable income to your employees.
- If you employ 2 or m ore household employees, health insurance premiums purchased through the SHOP (Small Business Health Options Program) on the Health Insurance Marketplace when the employer pays at least 50% of the premium are not treated as income to the employee. Employers and employees do not need to pay employment taxes on this sum.
- Remember, the nanny with health insurance is more likely to obtain preventative care (annual physicals, cholesterol screening, mammograms, PAP tests, etc.) and will often establish a medical relationship she can call upon when acute problems (ear infections for example) arise. A healthier nanny misses less work.
- A nanny who receives a health insurance benefit is less likely to change jobs.
- Tax credits for employer paid health insurance premiums are currently available to some household employers.
- A nanny who qualifies may be able to collect insurance premium subsidies (federal premium tax credits and cost sharing reductions) when purchasing individual health insurance through a public (State and Federal) Exchange.
Tax rules and regulations surrounding the health insurance industry are in a period of rapid change. HWS encourages employers to seek appropriate professional counsel when establishing health care reimbursement plans and insure that their reimbursement plan remains compliant with current rules and regulations. Some employers may also qualify for tax credits.
HWS provides this information as a courtesy to help you understand payroll tax changes resulting from the ACA. This is not be construed as specific tax or legal advice. Guidance relative to the ACA / Obamacare is subject to revision and this may not be the most current information available.
Updated January 14, 2015
Household Employers: A conversation about the Affordable Care Act
NYT: Regulators Warn Employers against REIMBURSING Employees for Health Insurance
IRS: Small Business Tax Credits for Health Insurance
Key Facts about the Small Business Health Options Program (SHOP)