W-2 Reporting Required for Nanny Tax-Free Healthcare Benefits

Earlier HWS reported on changes to tax-free employer assistance with nanny health insurance in 2017. As we approach the end of the year it is important to note that the reimbursement by an employer for nanny health care expenses - or any household employee's health care reimbursement - requires reporting of the benefit on the nanny's W-2 form.

The 21st Century Cures Act, signed into law by former President Obama in December 2016, establishes the rules for Qualified Small Employer Healthcare Reimbursement Arrangements (QSEHRA). The Internal Revenue Service (IRS) recently released the rules for the reporting of the employer's tax free reimbursements on the employee's W-2 form.

Why are employers required to report healthcare reimbursements to the government?

The 21st Century Cures Act established a mechanism for employers without group health plans to provide tax free assistance to employees for health insurance and other medical expenses. The employee's purchase their health insurance on the individual health insurance exchanges. The required reporting is necessary to help determine the amount of Federal subsidies for health insurance the employee qualifies for.

In simple terms, the W-2 reporting insures that the employee is not being dually subsidied for health insurance expenses both from their employer and from the Federal treasury.

Employers must either report the tax-free subsidy on the W-2 form or add the subsidy amount to the employee's taxable income - they must do one or the other.

How do employers report health care reimbursements on the W-2 form?

Employer healthcare reimbursements or subsidies that are tax free must be reported on Form W-2 in Box 12 using the code FF.

HWS clients will be asked VIA EMAIL COMMUNICATION to log into their secure client portal and report the 2017 healthcare reimbursement or subsidy they provided in 2017 for inclusion on the employee's 2017 Form W-2. Information must be received no later than December 22, 2017.

Quick 2017 Healthcare Reimbursement Guidelines

• Effective 2017, tax free employer subsidies for employee healthcare require a formal QSEHRA - including a plan document and reimbursement forms. SAMPLES HERE
• Reimbursement may not exceed $412.50 monthly for a single employee; $833 monthly for an employee with dependants.
• Tax free reimbursements or subsidies must be reported on the Employee Form W-2.