Health Insurance Premiums Are Considered Non-Taxable Compensation

Because health insurance is critically important, the government uses tax incentives to encourage employers to provide coverage for their employees. Therefore, household employers can provide health insurance premiums and have it be considered non-taxable compensation. This means the entire amount of the premium is tax-free to you and also tax-free to your employee - making it a great way to increase the “take-home” pay for an employee without increasing your out-of-pocket costs.

Insurance Providers

By law, health insurance must be bought through state-licensed providers. Due to the increasing self employment pool in America, more health insurance companies are beginning to offer comprehensive plans for individuals. Because there are still some illegitimate insurance providers in every state, we recommend that you exercise caution and allow ample time to research the various providers in your area. There are also various websites that can be very helpful in comparing plans from different carriers. Here are a few we’ve found.

http://www.ehealthinsurance.com/

http://www.ehealthlink.com/Washington/Default.asp

Coverage Options

Generally, there are four types of health plans (from least expensive to most expensive): (1) Catastrophic Care, which covers hospitalization only; (2) Health Maintenance Organizations (HMOs), which offer full coverage if you utilize their medical facilities and/or their limited choice of physicians; (3) Preferred Provider Organizations (PPOs), which offer full coverage through large physician networks; and (4) Indemnity Plans, which allow patients to see any physician at any medical facility - no limitations at all. Within each of these types of plans, there are numerous options on deductibles, co-pay amounts, prescription benefits, emergency care benefits, etc.

Costs

Unfortunately, getting an accurate quote for an individual health plan involves more than a quick phone call. There are many options and each comes with different levels of coverage and costs. In addition, the individual being covered will be a key factor in the cost of the plan; age, weight, health condition/history, lifestyle, where she/he lives, etc. will contribute to an overall health profile and be used to determine the amount of the monthly premium. Because of the customized nature of the process, it takes a little time to obtain accurate price quotes. For general budgeting, however, you can estimate premiums ranging from $200 per month to more than $350 per month.

Information supplied by Breedlove & Associates. Founded in 1992 - by household employers for household employers - Breedlove & Associates is a full-service, full-support tax & payroll service. They have served more than 11,000 clients and processed more than $1 billion in household payroll. For more information regarding employment taxes call 1-888-273-3356 or visit www.breedlove-online.com.

Fall City Farms in Fall City, WA

Remlinger Farms in Carnation, WA

Craven Farm in Snohomish, WA

Biringer Farms in Everett, WA

We recently had a family call us and tell us about a nanny they wanted to hire through another source. They were very excited about this nanny and were preparing an offer for her until they saw her Facebook account. It had posts and pictures about her drinking escapades. The family was immediately turned off and did not offer the nanny their job.

A New York Times article discussed the issue of setting your account to private. Most users assume that if they do this, only their “friends” will be able to see what they post. But, there are multiple ways around the privacy setting. Simply put, if you don’t want anyone else knowing about your private life do not post it online!

There are ways to capitalize your online presence to help you with your job search. In an article on MyCareer.com, they give lots of tips about how posting photos, videos and resume highlights online can actual help attract potential employers. As a nanny, posting pictures of you with children you care for, discussing your childcare experience and posting amusing stories can be beneficial.

• Employment History. A legitimate employment history is critical to daily life. It is required for a car loan, a mortgage, a student loan, a credit card application, a health insurance application, an auto insurance application, future job applications, etc. If your employment is not documented, it’s as if you don’t work. 

A Real Life Example:  Jill earns $2,000 per month as a nanny but is paid illegally.  She and her husband applied for a mortgage on their first home.  Since Jill’s employment is not documented, the bank does not count her income - and they cannot qualify with only the husband’s income.  In order to qualify, Jill has to put her salary “on the books” and wait 6 months before submitting a new loan application.

• Unemployment Insurance. As a taxpayer, you are entitled to receive approximately 50% of your salary for up to six months if you lose your job due to no fault of your own. This benefit is free to you, as your employer pays for the cost of the program through quarterly unemployment taxes.

A Real Life Example:  Jane lost her $500 per week job as a nanny when her family moved.  Since Jane was paid legally, she receives $250 per week in unemployment benefits while she looks for a new job. 

• Social Security/Medicare Benefits. Every taxpayer contributes 7.65% of their wages into their retirement account with the Social Security Administration. In addition to the employee’s contribution, the employer provides a dollar-for-dollar match. With these employee and employer contributions, plus the compounding of interest over time, employees will accumulate a significant nest egg which will help take care of them in their elderly years. (Nannies who are paid illegally are not entitled to any retirement benefits; sadly, there are many nannies around the country in this situation who will find it financially impossible to ever quit working).

 A Real Life Example:  Barb earns approximately $30,000 per year.  Over a 35-year career, she contributes about $80,000 to Social Security.  When she retires, she will receive approximately $375,000 in Social Security benefits during retirement, assuming she lives until age 85.  That’s a tremendous investment!

Many nannies don’t discuss this subject with their employers because they’re afraid it will be very expensive and/or difficult for their family.  In reality, doing the right thing can be simple and inexpensive.  Families who pay legally are entitled to significant tax breaks, which offset most - if not all - of the employer tax costs and there are services like Breedlove & Associates which eliminate all the paperwork headaches.

 Information supplied by Breedlove & Associates. Founded in 1992 - by household employers for household employers - Breedlove & Associates is a full-service, full-support tax & payroll service.  They have served more than 11,000 clients and processed more than $1 billion in household payroll.  For more information regarding employment taxes  call 1-888-273-3356 or visit www.breedlove-online.com.

We are often asked when is the best time to look for a job? Our answer is that it depends upon what type of job.  For example, right now is a busy hiring time for part time after school nannies to begin in September. These types of jobs are perfect for students or for those who have other pursuits in the morning. January is another time of year that a lot of jobs come on the market. At that time of year they tend to be full time jobs and usually a lot of infant positions.  In general families start searching for nannies about one month prior to their desired start date. So, whether you are looking for a full time, or part time job to start in September….the time to start searching is now!

As a childcare professional, you have one of the most important and noble jobs in the world - to nurture, protect, educate, guide and inspire children.  You should view yourself - and demand to be treated - as a professional.  In part, this means making sure that your compensation is handled accurately, fairly and legally.

 This is especially important for nannies because most families who employ nannies have a limited understanding of the payroll and tax laws governing household employment.  As a result, it is common for families to incorrectly withhold & remit their nanny’s taxes or to misclassify their nanny as an “independent contractor” by providing a Form 1099 at the end of the year.  Both scenarios are illegal and potentially expensive and time-consuming for everyone involved.  Worse, they end up depriving nannies of the benefits that other professional workers enjoy.

 To avoid these types of situations, it is important to understand the basics of the tax process:

•  Your employer withholds Social Security & Medicare (collectively known as FICA) from your gross wages at a rate of 7.65%.
• Your employer also withholds federal income tax from your gross wages (the exact tax rate depends on how many allowances you choose on Form W-4 and your marital status). By withholding federal income taxes each pay period, you are making pre-payments against your year-end tax liability so that, at the end of the year, you will end up with a very small payment - or better yet, a small refund.
• The family remits your FICA and federal income taxes each quarter - along with a dollar-for-dollar match of your FICA taxes (both your portion and your employer’s portion go directly into your retirement account with the Social Security Administration…because of the employer matching and the compounding of interest, most nannies will receive nearly $5 for every $1 they contribute!).
• The family pays a few small employer taxes, including unemployment taxes, which provide you with financial assistance in case of unemployment.
•  The employer provides you with a Form W-2 at the end of January. This form itemizes your earnings for the tax year as well as all your pre-paid taxes. You use Form W-2 to complete your personal income tax return.

………Next time we will discuss the benefits of being paid legally!

Information supplied by Breedlove & Associates. Founded in 1992 - by household employers for household employers - Breedlove & Associates is a full-service, full-support tax & payroll service.  They have served more than 11,000 clients and processed more than $1 billion in household payroll.  For more information regarding employment taxes  call 1-888-273-3356 or visit www.breedlove-online.com.