Tax Q&A: Affordable Care Act for Household Employers

We know that taxes can be complicated. When you hire a caregiver, you also need to deal with the paperwork, the rules, new laws…eek! To help families feel more comfortable and confident moving forward, we’ve created the following easy FAQ for household employers on the Affordable Care Act:

Last October, the first stages of the Affordable Care Act went live. And again this year, October will be the time when Americans looking for health insurance can access the online health insurance exchange where they can compare policies and ultimately purchase a plan that suits their individual needs. Because this is still a relatively new change to the way health insurance is administered, many families are confused or concerned about how the changes will impact them as a household employer.

What is the Affordable Care Act?

The Patient Protection and Affordable Care Act, commonly referred to as the Affordable Care Act, is a federal statute which was signed into law in 2010. The statute is primarily aimed at reducing the overall cost of health care and decreasing the number of uninsured individuals living in the United States by enacting a number of different mandates, subsidies and tax credits.

Am I required to offer health insurance to my employee(s)?

No, employers are not required to offer health insurance if they employ fewer than 50 employees. However, you are required to provide your current employee(s) and, at the time of hire, any future employee(s) with notice of the new Health Insurance Marketplace.

Is my employee required to have health insurance?

Yes, your employee may be charged penalties if she does not have health insurance coverage. However, you are not responsible for making sure your employee has health insurance.

What is the Health Insurance Marketplace?

The Health Insurance Marketplace, or The Marketplace, is a “one-stop shop” where individuals can compare and purchase health insurance policies. Open enrollment for The Marketplace begins on October 1, 2014 for coverage beginning January 1, 2015. Your employee(s) will be able to purchase health insurance through The Marketplace until open enrollment ends on February 15, 2015. For more information on The Marketplace, or to complete an online application for health insurance coverage, please visit www.HealthCare.gov.

How much will health insurance cost?

The cost of health insurance will vary depending on your state and the amount of coverage your employee chooses. After completing an application through The Marketplace, your employee will be able to compare prices and coverage options for   different health insurance policies. Depending on your employee’s income and family size, she may be eligible for the Advance Premium Tax Credit if she purchases insurance through The Marketplace. The credit can be applied directly to her monthly premiums which results in immediate cost savings. If she qualifies for the Advance Premium Tax Credit, her savings will be reflected in the prices displayed on The Marketplace.

If I contribute to my employee’s health insurance policy, will I be eligible for any tax breaks?

If you set up a health insurance policy for your employee through SHOP (Small Business Health Options Program) on the Marketplace and pay at least 50% of your employee’s premiums, you may be able to take advantage of the Credit for Small Employer Health Insurance. This credit is up to 50% of the amount you contribute to your employee’s health insurance premiums. To take this credit, you’ll attach Form 8941 to your personal income tax return. For more information regarding the requirements for contributing to health insurance, please contact HomePay at (888) 273-3356.

Nanny Hiring Tip: Capitalizing on Tax Breaks!

Hiring a nanny or babysitter to become part of your family and work in your home is one of the most important hires you will ever make. Our global tax experts, Leslie Forde and Tom Breedlove will be offering a webinar for those interested in household payroll and tax obligations on September 11th, at 8:00pm EST and 11:00pm EST. Learn more at myHomePay.com.

Register for our 8:00pm EST or 11:00pm EST webinar and learn great tax tips that could help your family-like tax breaks!

When families start the nanny hiring process, there are lots of questions about the cost. Are there tax breaks available? Which one should I use? Are there income restrictions? How much should I budget?

Here’s what you need to know: All families who pay their employee legally are entitled to at least one tax break, regardless of their income level. The only restrictions are that the children under care must be under age 13 and both parents must pass the “work-related test,” meaning each is employed, looking for employment or a full-time student.

For many families, the tax savings offset most of the employer tax cost. For some, the savings can even exceed the cost of their employer taxes (yes, it’s possible to come out ahead financially).

Here are the two childcare tax breaks: Dependent Care Account (FSA). Many companies offer their employees the option to contribute up to $5,000 of their pre-tax earnings every year to an FSA. Because paying nanny taxes qualifies as a childcare expense, you can take advantage of paying these expenses tax-free. Depending on your marginal tax rate, this tax break can save as much as $2,300 per year. If you think your company offers an FSA program, we recommend that you talk to the benefits manager about enrollment. Open enrollment usually occurs in the fall for the subsequent tax year, but there are exceptions for life-changing events such as the birth of a child that may allow you to enroll in this tax year.

Child and Dependent Care Tax Credit. Household employers are entitled to a 20% tax credit on childcare expenses of up to $3,000 for one dependent ($600 savings) or up to $6,000 for two or more dependents ($1,200 savings). You can claim this tax credit by completing IRS Form 2441 as part of your personal income tax return at year-end.

If you only have one dependent under age 13, you’ll have to choose between the two tax breaks. For most families the FSA is the best option.

If you have two or more dependents under age 13, you can take advantage of both tax breaks if your childcare expenses were greater than your FSA contribution. Excess expenses (up to the $6,000 expense limit) may be applied to the Child and Dependent Care Tax Credit on Form 2441.

To calculate your employer budget, visit our free Nanny Tax Calculator. With these significant breaks, most families find that paying a nanny legally is not only the right thing to do, it’s also the wise thing to do!

 

Don’t forget to check out our webinars and we’ll help you:

• Understand and document the important needs you and your family will have for a nanny.
• Discover tools and tips on how (and how much) to pay your caregiver. 
• Utilize a ‘nanny contract’ or employment agreement to set mutual expectations.
• Meet your obligations as a household employer and avoid unnecessary financial risk.
• Maintain a positive, healthy relationship with your caregiver over the long term!

Free Webinar: The Money Talk: Discussing Payments, Benefits and Raises with Nannies and Sitters

At Care.com we get questions from families and nannies all the time. The most common ones? Asking about money. Both nannies and families want to know how much to pay, how often, how to negotiate, what benefits are covered, etc. And we not only have the answers, but we have the services to help make paying sitters and nannies easier.

In this FREE 1-hour webinar, you will learn the answers to ALL your financial and pay-based questions.

Topics will include:
• How much should you pay a sitter?
• How much should nannies make per week?
• Do nannies get paid holidays, vacation and sick time?
• How can you discuss salary and raises with a family?
• What are some easy ways to pay or be paid online or using mobile devices?
• Do you need to pay taxes?
• Why aren’t nannies independent contractors?
• How is health and disability insurance covered?

Join Katie Bugbee, Senior Managing Editor of Care.com and a payroll expert from Care.com Homepay, provided by Breedlove in our live discussion on all things money. We will have the answers to these questions and any you send in.

Register Now: https://www3.gotomeeting.com/register/414668294