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What tax free benefits can I offer my nanny?

Posted by HomeWork Solutions on Dec 12, 2017 3:41:00 PM
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What tax free benefits can I offer my nanny

As an employer, you want to make sure your nanny feels valued and appreciated, so in addition to paying her a fair wage, it’s great to consider some additional benefits that you could provide that are tax-free. Household employees are eligible to receive non-taxed benefits and reimbursements, but some do have limits and procedures associated with them. Here, we will provide a few options for non-taxed benefits that you may be able to provide.

Health Insurance 

Starting in 2017, household employers may reimburse individually purchased health insurance (policies purchased by the nanny or caregiver in the individual exchange) and other deductible medical costs of up to $4,950 for an individual and up to $10,000 for a family. The amount must be prorated to reflect partial year coverage for employees who do not work a full year.

There are some steps the employer offering the QSEHRA must follow to be compliant. 

Cell Phone

Employers may reimburse their nanny's or caregiver's business use of their cell phone. Your caregiver uses this phone to communicate with you during her shifts, take photos to share with you, and as a resource to research activities and schedules. It’s important to note that this reimbursement is strictly for business use - and rarely does the nanny or caregiver have 100% business use! Its up to you to determine the reimbursement that is reasonable.

Meals

Meals can be excluded from employee wages if they are provided at the employer’s business location and for the employer’s convenience. Many families welcome the nanny to include favorites on the family shopping list!

Public Transportation Pass

For nannies who commute to work via public transit, this is an amazing benefit! Subject tomonthly maximum reimbursement, adjusted annually.

Tuition Assistance

If an employer chooses to help the employee pay for educational expenses or tuition under an educational assistance plan, the costs can be excluded from the employee’s overall wages, if certain IRS requirements are met. Education could be at an undergraduate or graduate level and it doesn’t need to be job related. There is a limit on how much the employee can receive per year.

Your nanny works hard each day, so providing a few additional incentives can go a long way in making your nanny feel appreciated.

A word of caution...

 There are record keeping requirements for all of these tax free benefits. Do make sure you require and retain the necessary records. In an audit, absent these records, the monies would be deemed wages and you may owe payroll taxes on the benefit. It's not complicated, and it certainly can avoid headaches down the road!

Tip Sheet - Avoid Common Nanny Payroll Mistakes

Topics: nanny, nanny benefits, agency, CPA

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