Did you know, if you employ a nanny or housekeeper, you can offer them health reimbursements on a tax-free basis? For all they do to keep your home and, let’s just say it: your life, running smoothly, it’s in everyone’s best interest to keep them happy—and healthy. Through a health reimbursement arrangement (HRA), you can make sure your household team (even if it’s just one person) is covered by reimbursing them for health insurance premiums and medical expenses.
Sound too good to be true? It isn’t! Read on to learn more about how an ICHRA or QSEHRA allows you to reimburse your household employee for healthcare.
Health insurance for household employees
Here's the best option for affordable health insurance coverage for the household employees you depend on.
How HRAs work
HRAs are not accounts, so there is no pre-funding (like with an HSA). Instead, you reimburse your employees for health insurance rather than buying it for them. As an employer, you decide on an allowance amount and your employees will buy an individual insurance plan.
You’ll only reimburse when an expense is incurred, like a monthly premium charge, a copay for a doctor’s visit, or the cost for a prescription medication. Your employee will upload a receipt to a third-party administrator (like Take Command!), and you can reimburse them on their paycheck.
ICHRA or QSEHRA for your nanny
The two types of HRAs that would work for household employees are the Qualified Small Employer HRA (QSEHRA), and the Individual Coverage HRA (ICHRA).
- QSEHRA is for businesses with less than 50 full-time employees, and they have maximum limits on reimbursements ($5,300 annually for individuals and $10,700 annually for families for 2021).
- ICHRA is for businesses of any size and does not impose any limits on reimbursement. (This post walks you through more of the particulars of establishing an ICHRA for your nanny.)
Both HRAs are set up with certain guide rails to ensure that employees are offered a helpful benefit that is affordable and doesn’t take away from their eligibility for premium tax credits.
A few things to keep in mind:
- Salary deductions aren't allowed.
- The HRA must be offered fairly to all household employees.
- The employee must have their own individual health insurance in order to qualify for the arrangement with the employer and must provide appropriate documentation. Choosing a health insurance plan on the individual market is a daunting task, especially if this is new territory for your employees. As an employer, you can provide your employees with tools and information to guide their decision making. Just beware, federal rules prohibit employers from being involved in the actual decision making when it comes to choosing a provider or policy.
- Your household must have an EIN, or Employer Identification Number. This will essentially allow your home and household employees to be considered a business in the eyes of the IRS.
- You must withhold taxes from your household employee’s paychecks and wages must be filed on a W-2.
How an HRA can help you and your household employee
- Tax-advantaged: Your reimbursements to your employees are tax-free, meaning as an employer, you won’t need to pay employer tax on the amount and your employees won’t have to pay income tax.
- Budget-friendly: Choose a monthly reimbursement budget that works for you. You can make changes on an annual basis, and leftover funds stay with you, not your employee. That means if your household employee doesn’t use all of their allotted reimbursement allowance, it stays in your pocket.
- Customizable: Depending on how you design your HRA, you can choose to vary rates based by age or family size, or, in some cases, you can choose to reimburse one amount to salaried employees and another amount to hourly employees as long as it’s offered fairly.
- Personalized: Since your nanny might need Blue Cross for her doctor and your maid might prefer Aetna to cover her prescriptions, an HRA allows each of your team members to choose the best plan for them.
Take Command can help
Using Take Command's employee enrollment platform can make benefits for your household employees easy and affordable. We'll handle all the accounting and legal legwork of the HRA, take care of onboarding each of your household employees, and make tax-time easy and painless.
