The following article was written by our payroll partner, HomeWork Solutions. To learn more about their company, please visit their website at www.homeworksolutions.com.
The health insurance marketplace continues to change, and starting 1 January 2020 employers of nannies, senior caregivers, and other household employees will have a new choice for assisting or supporting their employees with their health insurance and other health care expenses.
The strong employment situation we are enjoying today means there is even more competition for the top home care talent. Many employers are finding that a compensation package – including both wage and benefits – is necessary to hire and retain the highly qualified workers. Studies consistently show that workers prize health benefits and paid time off over all other workplace perks.
Remember, an employer sponsored tax advantaged healthcare reimbursement benefit is a part of a total compensation package, and tax advantaged healthcare reimbursement can BOTH reduce employer out of pocket expenses and increase caregiver take home pay!
Since 2017 the only option small employers had was a QSEHRA (Qualified Small Employer Health Reimbursement Arrangement). Starting January 2020 ICHRA (Individual Coverage Health Reimbursement Arrangement) enters the mix. Which one is right for you?
Both plans allow the employer to establish the total budget for the benefit (QSEHRA not to exceed annual limits). Employers find this attractive because they can set it and forget it, not being concerned with the changing costs of the employee’s underlying health insurance coverage. Additionally, a qualified healthcare reimbursement plan is sheltered from employment taxes (7.65% for both employer and employee) and the nanny’s or caregiver’s income taxes.
Both plans can be used to reimburse costs for both “qualified plans” and “qualified expenses.” And lastly both plans require formalized (but not complicated) plan documents and notice.
The best option for an employer and their household employee is dependent on multiple circumstances.
In situations where the employer contribution is modest (say $200 per month or $2400 per year) most household employees will find that the QSEHRA is a good choice, as the nanny or other household employee may still remain eligible for the residual tax subsidy on their ACA compliant plan and there is no possibility of exceeding annual plan caps.
A married household employee with access to coverage on their spouse’s employer’s group health insurance plan will find the QSEHRA is absolutely the best option. For a single household employee whose employer is offering reimbursement in excess of the applicable tax subsidy both plans are helpful, and the ICHRA may be better if the employer contribution is in excess of the QSEHRA caps.
Most importantly, please remember that the tax advantaged reimbursement plans are a part of a compensation package, and an analysis of the tax implications of the total compensation package is needed to assess the best option for both employer and employee.
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