Offering health care benefits to your nanny or other household worker can help you keep your best employees and attract top candidates to your job. This benefit will help you stand out among potential employers and establish a professional work environment for your employee.
Also, employees with health care benefits may spend less time being sick or battling illnesses as they’re more likely to see their doctor for annual checkups and when they’re not feeling well. This can help them get on the road to recovery faster and reduce the time they’re sick. An employee without health benefits may be reluctant to get medical attention for an illness due to cost. A healthier employee means fewer days when they call in sick and you’re left scrambling for back-up care or taking a day off work. Or they’re coming to work with an illness that can easily spread to your children and then throughout your household.
Another advantage for a family and their nanny is tax savings. Health benefit funds can be withheld pre-tax, reducing an employee’s taxable wages, lowering your employer tax obligation to Social Security and Medicare (FICA). Your nanny will also see a reduction in their income tax and FICA tax responsibility.
So what options are available?
Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)
A QSEHRA allows employers with fewer than 50 employees to offer a Health Reimbursement Arrangement. It’s a great option for household employers who don’t offer their employees a full health insurance plan. Under a QSEHRA, employees are reimbursed for health insurance plans purchased on the individual market or through the Affordable Care Act health care exchange. They can also be paired with an employee’s spouse’s plan. A QSEHRA can also be used for out-of-pocket medical, dental, and vision expenses. They are employer-funded and tax-free for your employee.
Annual employer contributions to a QSEHRA are capped at $6,350 for an employee who is single and $12,800 (2025 contribution rates) for an employee with a family.
Learn more about offering a QSEHRA.
Individual Coverage Health Reimbursement Arrangement (ICHRA)
An Individual Coverage Health Reimbursement Arrangement (ICHRA) may appeal to household employers who wish to provide tax-free health benefits to their employees.
ICHRAs are like QSEHRAs as they are both employer-funded Health Reimbursement Arrangements (HRAs) that reimburse employees tax-free for health insurance premiums and/or medical expenses. The money contributed by a family to an ICHRA is also not subject to employer taxes.
The major difference between an ICHRA and a QSEHRA is that there are no annual contribution limits with an ICHRA, while QSEHRAs are restricted to a set amount each year.
With an ICHRA, employees pay for their individual health insurance premiums and/or medical expenses and then submit receipts for reimbursement from their employer.
Learn more about offering an ICHRA.
Flexible Spending Accounts (FSA)
An FSA can be used for health insurance deductibles and co-payments, prescription medications, over-the-counter medicines with a doctor’s prescription, and medical equipment and supplies.
FSAs are funded by the employee with up to $3,300 in pre-tax dollars used to cover qualified expenses. Employers can make contributions to their employee’s FSA but aren’t required to.
Since money is taken out on a pre-tax basis, your employee’s taxable income is reduced, meaning both you (as the employer) and your employee may be able to lower tax responsibilities.
You would offer the FSA and designate an open enrollment period where your employee can determine the amount of money they expect to spend on healthcare items for the upcoming year. That amount will be divided into regular payroll deductions and allocated to their FSA account.
Your employee would submit receipts for their qualifying medical expenses to be reimbursed from their FSA account.
Learn more about offering an FSA.
Health Savings Accounts (HSA)
Funds in an HSA can be used to cover deductibles in a high-deductible health care plan (HDHP) and out-of-pocket medical, dental, and vision expenses. HSAs can be funded by the employee and/or employer. Money contributed to an account is either pre-tax or tax-deductible, depending on how it is set up. An HSA is the only plan that the employee individually owns, so the account can remain with a worker even if they change jobs. Because of this portability and the rollover of funds from year to year, an HSA can cover medical expenses when the employee is in retirement.
How Much Does It Cost?
If paid by the employer, this benefit is non-taxable to the employee. If the employer will have the employee contribute towards the coverage, they can do so on a pre-tax basis by establishing a premium-only plan document, which allows for pre-tax contributions for these types of benefits.
While premium costs will vary based on carrier, coverage level, and other factors, here is a look at average policy premiums in New York, New Jersey, and Connecticut:
New York
A fair representation of the New York City metro area market will range from $900 to $1,300 per month for employee-only coverage.
New Jersey
In New Jersey, the average premium for a 45-year-old will range from $900 to $1,500 per month for employee-only coverage.
Connecticut
In Connecticut, the average premium for a 45-year-old will range from $800 to $1,300 per month for employee-only coverage.
GTM Can Help You Offer Health Coverage
The GTM Insurance Agency has a specialty program that makes it easy for household employers to set up any of these health care programs for their employees. Call (800) 929-9213 or request a free quote to get started.
