Having health insurance coverage is important for everyone, especially nannies. Caring for kids means lots of kisses and hugs so nannies are exposed to more than their fair share of germs and illnesses. Add in the fact that most nanny employers don’t have a back-up caregiver readily available to cover sick days and it’s easy to see why it’s critical that a sick nanny can see a doctor and get medication when she needs to.
A recent survey I did of 545 nannies showed that 62% of full-time caregivers currently have health insurance and 22% of employers pay for all or a portion of the monthly premium. I’m hoping both those numbers go up in 2015.
The Affordable Care Act has made getting insurance more affordable for many nannies who now qualify for a subsidy towards their monthly premium. It’s also caused a lot of confusion around the impact the law has on the tax benefits of employer contributions to premiums. But thanks to Tom Breedlove of HomePay by Breedlove, we now have clarity around how it all will work.
Tom explains, “Employers can contribute toward an employee’s health insurance policy and have it be considered non-taxable compensation so that neither party is taxed if they only have 1 employee.” This is great news for families that only employ a nanny. And for the nanny! It means that parents can offer health insurance as part of their benefits package and neither the parent nor the caregiver pays taxes on those health insurance premium costs. Over the past several years, many employers have chosen to offer this and this recent announcement means they can continue to offer that benefit into the new year.
Let’s do some quick math. If a nanny’s health insurance premium is $300 a month, including it as a benefit means the family saves $30 each month on employer taxes (assuming the average tax cost of 10%), and the nanny saves $75 each month on employee taxes (assuming the nanny pays a combined 25% in Social Security / Medicare, federal and state income taxes) so the monthly cost drops down to $195 a month. That’s over $100 in savings each month! Nannies who are in a higher tax bracket will save even more.
So how does the payment part work? Does the family have to pay the insurance company directly or can they just cut a check to the nanny? Tom Breedlove ends the mystery. “They (the family) can write a check to the insurance company OR reimburse the employee. In the event of an audit, paying the insurance company directly is more desirable because it’s easy to demonstrate that the money did not go to the employee. If they reimburse the employee, I would advise having the employee print out a copy of the bill/receipt each month so there’s a paper trail proving the money was going to insurance.”
If you’re an employer and not currently offering a health insurance benefit, this is the perfect time to consider adding it. Open enrollment for nannies to purchase health insurance ends February 15th, 2015. Until that date, anyone can sign up for a new policy. After that date, your nanny won’t be able to sign up unless she has a qualifying event like aging out of her parents’ policy or having a baby. Think you can’t afford to add to your benefit package? Many families offer the benefit in lieu of a raise. The nanny has a net gain (remember the math above!) but it doesn’t cost the family anything.
So are families that employ more than one household employee (e.g. a nanny and a housekeeper) just out of luck? No, but those families must purchase their employee’s policy through SHOP (Small Business Health Options Program found at www.healthcare.gov) for the premiums to be considered non-taxable income. It’s a bit more complicated, but still a worthwhile benefit.
What about the tax credit that employers used to get? Tom Breedlove says, “They can still receive the credit (Health Insurance Tax Credit for Small Employers) if they purchase their nanny’s policy through SHOP, pay for at least 50% of the premium and the average of all employees’ wages is $50,000 or less. All three of those conditions must be met to take the tax credit, which is up to 50% of the contributions.” Taking this credit is a bit more work than it used to be but worth the effort if the employer meets all the requirements.
If you have questions or want to know how the numbers work out for your situation, HomePay by Breedlove offers a free phone consultation. (One of the many reasons they are an awesome tax company!) You can give them a call Monday through Friday from 8 AM to 6 PM CST at .