There is a lot of confusion and some contradictory guidance regarding whether nanny and other household employers can continue to provide reimbursement of the household employee's individual health insurance premium on a tax free basis and exclude the reimbursement from the nanny's W-2 form.
HomeWork Solutions is pleased to report that a household employer with ONLY one employee (nanny, senior caregiver or housekeeper) may continue this long standing practice.
HomeWork Solutions researched this issue thoroughly and consulted with the IRS to substantiate our findings. We are pleased to confirm an exemption to the taxability of premium support for employers with only one employee.
Accordingly, employers with only one employee do not need to participate in the small business health insurance exchange (SHOP) in order to reimburse employees for documented individual health insurance coverage on a pre-tax basis.
Although there does not appear to be a stated exemption in the ACA for employers with one employee, the market reforms in question apply only to group health plans - with a group defined as 2 or more employees. Our contact at the IRS assured us that the IRS is recognizing the single-employee exception contained in 26 USCA §9831 (a)(2) in implementing the ACA reforms referenced above."Code § 9831(a)(2) provides that the market reforms do not apply to a group
health plan that has fewer than two participants who are current employees on the first
day of the plan year. Accordingly, an arrangement covering only a single employee
(whether or not that employee is a 2-percent shareholder-employee) generally is not
subject to the market reforms whether or not such a reimbursement arrangement
otherwise constitutes a group health plan." Source: Internal Revenue Service Bulletin 2015-17
Household employers with two or more employees must participate in the SHOP and contribute 50% or more to the household employee's premium to provide tax free insurance benefits. These employers are also eligible for tax credits for the insurance premiums.
Tax rules and regulations surrounding the health insurance industry are in a period of rapid change. HWS provides this information as a courtesy to help you understand payroll tax changes resulting from the ACA.
This is not be construed as specific tax or legal advice. Guidance relative to the ACA / Obamacare is subject to revision and this may not be the most current information available.
Under federal law, small employers are guaranteed group coverage should they choose to purchase it, regardless of the employees’ health status. A “small employer” is defined as a business with 2 to 50 full-time employees.