How to include non-taxable benefits into your caregiver's payroll

Some benefits can be included in payroll tax-free for caregivers

Updated

When setting up payroll for your household employee, it’s worth your time to consider adding one, or several benefits, as part of their total pay. Specifically, the IRS has a set of what they call “fringe benefits” that are considered non-taxable forms of compensation. This means the value of those benefits when added to your nanny or senior caregiver’s payroll are not subject to taxes for you or them.

 

2019 IRS-approved non-taxable compensation benefits for household employers

  • Health Insurance premiums from a state-licensed insurance provider.

Note: If you have multiple employees, you must set up a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) or purchase a policy through SHOP (Small Business Health Options Program) to gain this benefit.

 

  • Up to $265 per month toward public transportation to and from the worksite.

Note: Families in Massachusetts are capped at $140 per month for this benefit.

 

  • Up to $265 per month toward parking at the jobsite and/or at the public transportation facility.

 

  • Cell phone service reimbursement, provided that using the phone is a necessary requirement of the job.

 

  • Up to $5,250 per year towards tuition & books for an accredited college or university.

 

“Using any number of non-taxable benefits means your caregiver’s gross wages are lowered by the value of the benefits you provide,” says Tom Breedlove, Sr. Director of Care.com HomePay. “So when you’re calculating how much in taxes you have to withhold from your caregiver and pay on your own, you use this lower value, which ultimately saves you and you caregiver money.”

 

A payroll example using non-taxable benefits

Say you’re paying your caregiver $600 per week with no additional benefits added and they fill out their Form W-4 as Single with 1 allowance. Each pay period, this is what your care budget and their net pay will be approximately:

Your Caregiver:Your Care Budget:
Gross wages - $600Gross wages - $600
Taxes withheld - $95.71Employer taxes - $53.49
Take-home pay = $504.26Total weekly cost = $653.49

 

Now take the same caregiver, but you’ve decided to include $25 per week in health insurance and $50 per week for public transportation as part of their payroll. So even though you’re paying them $600 per week, you’re now excluding $75 of that from taxes. Let’s look at how weekly payroll looks now:

Your Caregiver:Your Care Budget:
Gross wages - $525Gross wages - $525
Taxes withheld - $80.97Employer taxes - $46.90
 Non-taxable benefits - $75
Take-home pay = $444.03Total weekly cost = $646.90

 

At first glance, you probably think this doesn’t work for your caregiver because they’re taking home about $60 less per week. However, they’re actually saving $15 per week because without benefits added to their payroll, they would be spending an additional $75 out-of-pocket on health insurance and public transportation. It’s a small amount, but over the course of the year, it’s a nearly $800 difference.

 

For your household employment taxes, you’re saving $6.59 per week - or $342.68 for the year. Every little bit helps if you’re on a tight budget, so the work in setting up payroll this way from the beginning is probably worth it. The experts at HomePay are happy to help you budget for your caregiver's payroll by including any of these forms of non-taxable compensation. Give us a call and we'll work through the details together.

 

 

Next Steps:

 

First things first—have you hired a caregiver?

If you're seeking a caregiver or a care job, visit Care.com

What type of caregiver have you hired?

Have you already made any payments to your caregiver?

Yes
No

If you've made payments, we'll help you track them and we'll provide your employee with pay stubs.

We'll help calculate the taxes in your state.

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What type of caregiver are you planning to hire?

When do you expect to hire someone?

How many hours do you estimate your caregiver will work?

0 - 15 hours / week
15 - 40 hours / week
40+ hours / week
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