Household Employer

[S T]

Have a question regarding a Household Employer, wages and benefits.

I am okay with the requirements for State and Federal payroll requirements on Household Employer and will register and do what is appropriate.

The question arose, whether or not the Household Employer paid for Medical Insurance - due to the requirements of Obamacare.

As the Employer (individual household employer) can not obtain Medical Insurance for the individual under a Group Plan, how to treat the Medical Insurance Premiums for the Household Employer on behalf of paying the Individuals medical premium? Will this also be considered wages?

This will be a Home Health Care situation due to Medical needs that we have a Doctor's order on for two Seniors that require Assistance for staying at home.

Thanks for your assistance

Sandy

[DaveinTexas]

No requirement under Obamacare

If there are 50 or fewer employees, and that has been extended to Jan 1 of 2015. As for the treatment of the premiums paid on behalf of the employee, Circular 15B reads:

"Accident or health plan. This is an arrangement that provides benefits for your employees, their spouses, their dependents, and their children (under age 27) in the event of personal injury or sickness. The plan may be insured or noninsured and does not need to be in writing.
Employee. For this exclusion, (exclusion from income) treat the following individuals as employees.
A current common-law employee. (This would include a nanny)

IRS Definition of common law employee: Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.

Also you may want to check with a labor specialist or local/state laws about the requirement to cover employees under a health plan. I hope that helps.

Weather check in: 100 degrees in the great State of Texas.

[erchess]

Not sure I understand

If I understand you correctly you have a client who is a household employer and you don't know how to report for payroll purposes the fact that the taxpayer provides medical insurance for the employee. I understand that the taxpayer will be writing the expenses off as Sch A Medical expenses but that of course has noting to do with the payroll preparation.

I don't know about the mechanics of reporting things or even for sure if your client can use the Sch H with return to report payroll. I would think that the insurance costs would be nontaxable to the employee but still deductible to the employer but I don't have a cite to back me up.

I trust that you don't think that Obamacare requires the taxpayer to provide medical insurance. It might work out significantly better for the employee if he or she received the money and went to an exchange and bought coverage. Anyone can go to the National Exchange if their State did not set up an Exchange. Note also that the penalty for employers not providing health insurance does not kick in until 2014, affects only employers with 25 full time equivalent employees, and will be enforced only in States that unlike NC but like CA have set up Exchanges at the State Level. The penalty for each employee will be the amount by which their policy at the exchange is subsidized due to their household income and family size. For everything in this paragraph you can consult the excellent materials of TMI which in this case does not stand for Too Much Information.

Now I didn't see Dave's post until after I posted the above. The only place I see where we differ is 2014 vs 2015 for the startup of the requirement and whether the trigger is 25 or 50 FTE. I will assume that he is right on the date and the number and that he knows we are talking FTEs not total employees. The FTE thing is kind of convoluted but the idea is to keep an employer from getting around the rules by hiring part time employees or over working a smaller staff. In any event one employee is nowhere near the requirement. And Dave found a cite for the fact that health insurance is nontaxable for the employee although if he said it is deductible for the employer I missed that.

[S T]

What I am looking at is

Employee (Household EE) obtaining medical coverage

Employer (Household ER) would like to also cover that cost of medical insurance in addition to the proposed monthly Home Health Care Salary - (reporting on Sched H and the local State requirements.

Question is - Household Employer needs to add the medical insurance cost subject to FICA/Mcare and also State payroll deductions.

Guess the question is -- is the medical reimbursement deductible for the Household ER and it is taxable to the Household EE

Thanks

Sandy

[DaveinTexas]

Medical coverage for the employee

What I am looking at is

Employee (Household EE) obtaining medical coverage

Employer (Household ER) would like to also cover that cost of medical insurance in addition to the proposed monthly Home Health Care Salary - (reporting on Sched H and the local State requirements.

Question is - Household Employer needs to add the medical insurance cost subject to FICA/Mcare and also State payroll deductions.

Guess the question is -- is the medical reimbursement deductible for the Household ER and it is taxable to the Household EE

Thanks

Sandy

Would not be deductible for the Employer, as the premiums are not includible in the employee's income (1) and therefore not subject to Federal or Employment taxes and (2), the employer is not engaged in a business.

Great question.

[S T]

Dave In Texas!
Thanks for the feedback,

Can we make it part of the payroll?

Guess I can gross up the payroll for the HH EE, HH EE is a short form, not Schedule A - so medical deduction on the HH EE return is not feasible.

Options or suggestions? Trying to arrive at the best tax benefit both the HH ER and the HH EE

Thanks

Sandy

[DaveinTexas]

Another great question

Dave In Texas!
Thanks for the feedback,

Can we make it part of the payroll?

Guess I can gross up the payroll for the HH EE, HH EE is a short form, not Schedule A - so medical deduction on the HH EE return is not feasible.

Options or suggestions? Trying to arrive at the best tax benefit both the HH ER and the HH EE

Thanks

Sandy

The best way to answer this is to look to/modify the employment contract to state the services performed and the salary/wage of the worker for each service performed.

I read this from the Publication 502:
Generally, only the amount spent for nursing services is a medical expense. If the attendant also provides personal and household services, amounts paid to the attendant must be divided between the time spent performing household and personal services and the time spent for nursing services. For example, because of your medical condition you pay a visiting nurse $300 per week for medical and household services. She spends 10% of her time doing household services such as washing dishes and laundry. You can include only $270 per week as medical expenses. The $30 (10% × $300) allocated to household services cannot be included. However, certain maintenance or personal care services provided for qualified long-term care can be included in medical expenses.

Further from the same Pub regarding the maintenance and personal care services:
Chronically ill individual. An individual is chronically ill if, within the previous 12 months, a licensed health care practitioner has certified that the individual meets either of the following descriptions.
1. He or she is unable to perform at least two activities of daily living without substantial assistance from an- other individual for at least 90 days, due to a loss of functional capacity. Activities of daily living are eating, toileting, transferring, bathing, dressing, and conti- nence.
2. He or she requires substantial supervision to be pro- tected from threats to health and safety due to severe cognitive impairment.

If the clients fit this description then you don't have to worry about the allocation between personal services and medical care. In short, if you were to gross up the benefits and the clients are not considered chronically ill, then you will want to make sure the salary and employment tax deduction aligns with the employment contract, list of duties the employee is responsible for performing, etc etc.

[S T]

Great Info leading me to

The best way to answer this is to look to/modify the employment contract to state the services performed and the salary/wage of the worker for each service performed.

I read this from the Publication 502:
Generally, only the amount spent for nursing services is a medical expense. If the attendant also provides personal and household services, amounts paid to the attendant must be divided between the time spent performing household and personal services and the time spent for nursing services. For example, because of your medical condition you pay a visiting nurse $300 per week for medical and household services. She spends 10% of her time doing household services such as washing dishes and laundry. You can include only $270 per week as medical expenses. The $30 (10% × $300) allocated to household services cannot be included. However, certain maintenance or personal care services provided for qualified long-term care can be included in medical expenses.

Further from the same Pub regarding the maintenance and personal care services:
Chronically ill individual. An individual is chronically ill if, within the previous 12 months, a licensed health care practitioner has certified that the individual meets either of the following descriptions.
1. He or she is unable to perform at least two activities of daily living without substantial assistance from an- other individual for at least 90 days, due to a loss of functional capacity. Activities of daily living are eating, toileting, transferring, bathing, dressing, and conti- nence.
2. He or she requires substantial supervision to be pro- tected from threats to health and safety due to severe cognitive impairment.

If the clients fit this description then you don't have to worry about the allocation between personal services and medical care. In short, if you were to gross up the benefits and the clients are not considered chronically ill, then you will want to make sure the salary and employment tax deduction aligns with the employment contract, list of duties the employee is responsible for performing, etc etc.

This is a Family Care issue - in otherwords - Parents - both Father and Mother, have certifications from Doctors stating some type of Assisted Health Care Intervention, that they can no longer take care of themselves, and need/qualify for "Home Health Care" - Possibly of some VA Benefits to also accomplish this, but we do not have those answers/qualifications as of yet.

There is a daughter "limited income" that can qualify to be a "Homecare Giver" so what we want to accomplish is "Wages" to the Daughter to protect her SSA earnings history and make her a "Household Employee" and by accomplishing that within the Medical Necessity Guidelines - also accomplish a Sched A Medical Deduction for the Parents.

I have accomplished this a one or two times in the past, this new wrinkle of paying the "Caregiver" Medical Insurance with the "new mandates" taking place is what is giving me some concern.

I am thinking - I can gross up the Payroll for Sched H to include the Medical Premiums for the HH ER to iinclude as Gross Wages - pay FICA-Mcare and Associated State Requirements - HH EE pays the medical premium - if I can report that way all should be good - HH ER is not under the mandate as of yet to provide medical insurance - so should not a concern?

Just trying to calculate the Gross Income and the Schedule H - Household Employee requirements.

Trying to find the best advantage for the Parents and the Home Health Care (daughter) meet the regulations - and in this case keep everyone in a Home Environment

Thanks,

Sandy

[Burke]

Pondering this situation, you are trying to "gross up" the wages without actually paying the employee to include what is, by law, an untaxable fringe benefit to the employee in order for the TP to be able to deduct the entire amount. The cost of providing health insurance for employees is deductible by an employer even though it is not subj to income tax or FICA taxes for either party. Therefore, grossing up is not necessary. One could make a case that it would be reasonable and customary to obtain a qualified caregiver, and that it is a proper part of the employment contract. If the non-taxable fringe benefit were tuition expenses, say, I would have a problem deducting that as a medical expense. But most expenses associated with employment of a person are deductible. When I did these payroll expenses in a similar situation, we deducted the cost of workmen's comp for these employees as a separate item but it went on Sche A with the other medical expenses. The TP is an employer in this situation even though the IRS has simplified the process of reporting employment taxes with the Sche H on his 1040.

[DaveinTexas]

Good Info

Pondering this situation, you are trying to "gross up" the wages without actually paying the employee to include what is, by law, an untaxable fringe benefit to the employee in order for the TP to be able to deduct the entire amount. The cost of providing health insurance for employees is deductible by an employer even though it is not subj to income tax or FICA taxes for either party. Therefore, grossing up is not necessary. One could make a case that it would be reasonable and customary to obtain a qualified caregiver, and that it is a proper part of the employment contract. If the non-taxable fringe benefit were tuition expenses, say, I would have a problem deducting that as a medical expense. But most expenses associated with employment of a person are deductible. When I did these payroll expenses in a similar situation, we deducted the cost of workmen's comp for these employees as a separate item but it went on Sche A with the other medical expenses. The TP is an employer in this situation even though the IRS has simplified the process of reporting employment taxes with the Sche H on his 1040.

Thank you Burke for the clarification, my apologies Sandy for the confusion.

[S T]

That is what is so great about this Board - pondering and exploring thoughts and ideas.

Sometimes I tend to complicate issues

Thanks Burke for your feedback, so really a simple matter for Household Employer as with any other Employer - Pay the Wages, Medical is a non taxable fringe, and Employer (under the conditions I posted) can use wages, payroll taxes and medical insurance for HH EE) as a medical deduction on Sched A.

Thanks

Sandy