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Is health (medical) insurance for my nanny taxable?

Families that offer health insurance to their nanny find this is a win-win situation. Why?

  • 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: 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.
  • The nanny with health 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.

    • 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.

    Families may not deduct the cost of the health insurance premium for their personal income taxes the way a business does.

    When the employee pays the premium via payroll deduction, it is an after tax deduction. Procedurally you calculate all taxes based on the gross wage to compute the wage net of taxes. You then deduct (subtract) the insurance premium from the net pay.

    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.

    More Information

     Eisenberg Associates