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Is health (medical) insurance for my nanny or senior caregiver taxable?


Many employers understand that key benefits such as employer paid health insurance is an important employee recruitment and retention tool.

Is health insurance taxable?

  • Household employers with fewer than 50 household employees may reimburse health insurance premiums obtained in the individual marketplace on a tax free basis utilizing either a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) or an Individual Coverage Health Reimbursement Arrangement (ICHRA).
  • The tax free nature of this benefit to both the employer and the household employee make this an attractive consideration when negotiating initial salaries as well as salary increases.
  • Annual QSEHRA imitations apply; $5,250/annually for individual insurance premiums, and $10,600 for family plans.(2020 limits). The ICHRA does not have annual reimbursement limits. Both plans require that annual reimbursement limitations be established by the employer in the plan documents. However the ICHRA cannot reimburse employee’s covered by a spouse’s employer’s group health insurance.
  • Non-discrimination tests apply – this means if you have 2 or more full time household employees all must receive the same benefit (26 USC §9831 (d)(2)(C)).
  • The QSEHRA and ICHRA are 100% funded by the household employer.
  • The QSEHRA and ICHRA reimbursements must be reported on the employee’s Form W-2 annually. *

Why Establish a QSEHRA or ICHRA?

  • The nanny or caregiver with medical 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.
  • 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.

You can Outsource QSEHRA and ICHRA Administration!

Those looking for a comprehensive solution to QSEHRA administration should consider enrolling with our partners at Take Command Health.  Their QSEHRA Guide and ICHRA Guide have detailed answers to all of your HRA related questions.  Even better, if you enroll with promo code HOMEWORK30 you’ll receive 30% off standard pricing.

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.

HWS provides this information as a courtesy to help you understand the changes to household employee payroll services resulting from the ACA healthcare reporting requirements. 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.

* HWS clients will have proper W-2 reporting when reimbursement is made via HWS  payroll. HWS does NOT administer the QSEHRA plan, and record-keeping is an employer responsibility. HWS will only reimburse upon employer instruction. We regret that we cannot offer this W-2 reporting to Essential Payroll clients.


Updated November 18, 2019

Links:

Take Command Health (administrative partner)

Blog: New Tax Advantaged Health Insurance Options for Household Employees

Blog:  How to Setup a QSEHRA Healthcare Reimbursement for Your Nanny

SAMPLE TEMPLATE: Household Employer QSEHRA Plan Document and Reimbursement Form

SAMPLE TEMPLATE: Individual Coverage Health Reimbursement Arrangement (ICHRA)

REQUIRED: ICHRA Notice to Employees

New Law Let’s Small Employers Reimburse Individual Insurance Premiums

The 21st Century Cures Act impacts small employers in a big way

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