3 ways to contribute to your caregiver's health insurance and lower your taxes

Families can help their nanny with health insurance via payroll

Updated

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 employee’s policy. It’s a strategic way to enhance your caregiver’s compensation package while decreasing your tax liability at the same time.

 

There are three options available to you, each with a different procedure depending on the level you want to be involved in providing health insurance to your caregiver(s).

 

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 that choose this route will save about 10% on the amount they contribute while their caregiver will save approximately 15-20%,” says Eva MacCleery, Director of Care.com 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: Offer to set up a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)

You can offer a QSEHRA to contribute up to $5,150 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. Click here for more information about QSEHRA.

 

Option #3: 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 $53,000. 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 $50,000.

 

Note: If you live in a state that set 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.

 

Next Steps:

 

First things first—have you hired a caregiver?

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