On Tuesday, December 13, 2016 President Obama signed into law the 21st Century Cures Act. Tucked away inside the 1000 page legislation is a provision that allows employers to use Health Reimbursement Arrangements to compensate employees who buy their own insurance.
Beginning on January 1, 2017, an employer with fewer than 50 full-time employees who does not offer a group insurance plan can reimburse employees' for purchasing individual health insurance as if it were directly paying the premiums on a group health policy. This means that the the employee won't have to pay taxes on the employer's contribution, and the employer doesn't owe payroll taxes on it, either. There are some conditions for this new benefit. For household employers the salient point is that the employer must make the reimbursement available on the same terms to all of their household employees. The law limits annual reimbursement to $4,950 for individual insurance (412.50 monthly), and $10,000 for a family plan ($833.33 monthly), amounts that are indexed for inflation.
Previously individual insurance premium reimbursement was only available when the household employer only had one employee. This act overturns IRS Notice 2013-54 and IRS Notice 2015-17 which prevented small employers from reimbursing employees for non-group insurance plans.
"For eligible small employers, this new law is welcomed and overturns guidance previously issued by the Internal Revenue Service and the Department of Labor that stated that HRA (Health Reimbursement Accounts) arrangements violated the ACA insurance market reforms, subjecting small employers to a penalty for providing such arrangements," said Chatrane Birbal, the Society for Human Resource Management's senior advisor for government relations. "This change provides small employers greater flexibility in terms of benefit offerings and allows eligible employers to use HRAs to help employees purchase an affordable health insurance plan that fits their individual budget and health care needs."
This is good news for nannies and other household employees. When negotiating salary and raises, this is a good item to consider due to it's tax free nature. A nanny who is offered $900 a week may choose to counter back with $805 weekly plus a tax free $95 reimbursement for health insurance.
The household employer remains responsible to perform due diligence to confirm that the employee actually had an insurance policy, and best practice remains to write the reimbursement payable to the insurance carrier, rather than the employee.