Providing pre-tax health benefits to your nanny can come at virtually no cost to you. Here’s how it works when offering your employee an ICHRA or QSEHRA to cover their health care costs.
Did you know that offering health benefits to your nanny can come at little cost to you? Here’s how it works if you offer your employee an ICHRA or QSEHRA to help cover their health care costs.
Pre-tax health benefits through an ICHRA or QSEHRA
A family with household help can offer a Health Reimbursement Arrangement (HRA) to their worker. These are called ICHRAs (Individual Coverage Health Reimbursement Arrangement) and QSEHRAs (Qualified Small Employer Health Reimbursement Arrangement).
Your contributions to an employee’s HRA are not taxed for you or your employee. Reimbursements are also not taxed.
With an HRA, your employee can:
- Get reimbursed for health insurance coverage purchased on the individual market or through the health care exchange
- Pair the account with their spouse’s health insurance plan
- Use funds for out-of-pocket medical, dental, and vision expenses
You can fund an employee’s QSEHRA up to $6,450 for an employee who is single and $13,100 per employee with a family (2026 contribution rates).
There is no annual contribution limit with an ICHRA.
Learn more about QSEHRAs | Learn more about ICHRAs
Now we will look at how this pre-tax benefit can save you money and help your employee.
Total cost of a nanny without pre-tax health benefits
Let’s say you are in New York State and plan to hire a nanny at $30/hour for 40 hours/week without pre-tax health benefits.
Using our nanny tax calculator, we can determine*:
Nanny pay
| Gross pay | $62,400 |
| Federal income tax | $5,308.16 |
| Social security | $3,868.80 |
| Medicare | $904.80 |
| State income tax | $2,697.24 |
| Net (take-home) pay | $49,621.00 |
Employer responsibility
| Gross pay | $62,400 |
| Employer taxes (unemployment and FICA) | $5,348.60 |
| Total employer responsibility | $67,748.60 |
You can reduce your nanny costs by using the Child and Dependent Care Tax Credit and/or a Dependent Care FSA through your work.
Total cost with pre-tax health benefits (ICHRA or QSEHRA)
Let’s take the same scenario, but instead, you reduce your employee’s gross pay by $6,450, which is the maximum contribution you can make to their QSEHRA account*.
Nanny pay
| Gross pay | $55,950 |
| Federal income tax | $4,534.40 |
| Social Security | $3,468.92 |
| Medicare | $811.20 |
| State income tax | $2,348.84 |
| Net (take-home pay) | $44,788.64 |
| Employer health benefit contribution | $6,450 |
| Total take-home compensation | $51,238.64 |
Employer responsibility
| Gross pay | $55,950 |
| Employer taxes | $4,855.12 |
| QSEHRA contribution | $6,450 |
| Total employer responsibility | $67,255.12 |
Again, you can further reduce the costs of having a nanny by using the Child and Dependent Care Tax Credit and/or a Dependent Care FSA.
Benefits of offering a pre-tax health care account
By providing your nanny with an ICHRA or QSEHRA, you can offer a greater “take-home” compensation package because your nanny’s taxes are lower with reduced gross pay. At the same time, you can cut your total employer responsibility by a few hundred dollars because you, as well, are paying less in taxes due to your nanny’s lower gross pay.
Health care stipends vs. pre-tax health benefits
Some household employers may offer a stipend to help their workers offset their health care costs. Stipends are not offered pre-tax and may be considered part of your nanny’s total wages, meaning it is taxable income for you and your employee. A pre-tax health account, like an ICHRA or QSEHRA, is a better option than a health care stipend.
Minimum wage rates still apply
When you reduce your employees’ gross wages by offering pre-tax health benefits, you still need to pay the applicable minimum wage, which is the highest of the federal, state, and local rates.
In our example, paying $26.90/hour with pre-tax health benefits is still legal, as the minimum wage in New York State is $17/hour (New York City, Long Island, and Westchester County) and $16/hour for all other parts of the state.
Other pre-tax benefits
Besides an HRA, you can make tax-free payments of up to $5,250/year toward your employee’s qualified educational expenses, such as tuition and textbooks.
Similar to offering an HRA, you could reduce your employees’ total wages by up to $5,250 for education expenses and make that contribution tax-free. This could be ideal if your nanny is a college student.
GTM can help with health benefits
GTM Payroll Services can help set up an HRA for your employee. Call GTM Insurance at (800) 929-9213 to learn more or get a complimentary quote. Offering health benefits is even easier when tied to a GTM payroll and tax account. Get a complimentary, no-obligation consultation with a household employment expert for more information on our payroll and tax plans. Just call (800) 929-9213 or schedule a time with us at your convenience.
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*These are sample calculations based on state and federal tax rates, typical pay ranges, and allowances, and should not be regarded as formal tax advice. Your individual results may differ. Consult a tax professional for specific advice and guidance, or call us at (800) 929-9213.
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