Is health insurance for my nanny taxable?
» Health insurance premiums paid by the employer are not treated as income to the employee. Therefore, the employer does not pay the approximate 10% employment tax on the benefit, and the nanny does not pay Social Security, Medicare or Income Taxes on the premium (easily 20% or more of the premium). Caveat: A non-discrimination test applies. The employer must offer the same health benefit to all employees - easy if the nanny is the only employee, perhaps problematic if there is a weekly housekeeper also employed by the family.
A health insurance benefit often improves employee retention. A nanny with health insurance is more likely to address health issues when they start and to seek routine preventitive screenings such as PAP tests and cholesterol screening, avoiding major problems down the road. A healthy nanny misses less work.
Families are advised to either pay the health insurance premium directly to the insurer or to pay the employer contribution to employee insurance to the employee in a check separate from their payroll and clearly memoed as Insurance Premium with policy identification information. It is recommended further that the family keep a copy of the nanny's current insurance card on file as proof of coverage. This documentation would be important should the family be audited.
Many families initially offer a 50% health insurance benefit up to a certain cap per month ($150 - 200 is common) to the nanny. They often allow the nanny to self-select her policy, assisting her if requested. When it is time for an annual pay review, often times the nanny and family will agree to have the family pick up the entire insurance payment in lieu of a raise or in conjunction with a reduced raise. The tax benefits they both enjoy make this a very practical solution.
For More Information contact HomeWork Solutions, Inc.
at 1-800-NaniTax or e-mail and submit a question.