Nanny Health Insurance: Stipends, QSEHRA & ICHRA
Helping your nanny or caregiver with health insurance is one of the strongest retention moves a household employer can make — but the way you do it decides whether the money is taxed. A cash "health stipend" is taxable wages. A formal reimbursement arrangement isn't. Here's how the three options compare for 2026, and how to set each one up.
Start Payroll Free →Three ways to help — and how they're taxed
There are three legitimate ways for a household employer to put money toward an employee's healthcare. They differ mainly in tax treatment and paperwork:
| Option | Tax treatment | 2026 annual limit | Best for |
|---|---|---|---|
| Cash stipend / raise | Taxable wages — income tax + payroll tax, both sides | None | Simplicity; no plan documents |
| QSEHRA | Tax-free reimbursement | $6,450 self-only · $13,100 family | Modest monthly support with a formal cap |
| ICHRA | Tax-free reimbursement | No limit | Larger contributions; employee has their own individual plan |
The tax difference is not small. Reimbursements through a QSEHRA or ICHRA are excluded from wages entirely — no employer payroll tax (7.65% FICA), no employee payroll tax, no income tax withholding on the benefit. The same dollars paid as a stipend are taxed on both sides like any other pay.
The cash stipend: honest, simple, taxed
A stipend is just extra pay earmarked for health costs. It runs through payroll like any other wages: you pay employer FICA on top of it, and your employee pays FICA and income tax out of it. There's nothing wrong with this — it's the simplest option, there are no plan documents or notices, and your employee can spend it however they like.
QSEHRA: the small-employer reimbursement account
The Qualified Small Employer Health Reimbursement Arrangement was built for employers with fewer than 50 full-time-equivalent employees who don't offer a group health plan — which describes essentially every household employer. You commit to a monthly reimbursement amount, your employee submits proof of coverage and expenses, and reimbursements up to the annual cap are free of income and payroll tax on both sides.
2026 contribution limits
| Coverage | Annual max | Monthly equivalent |
|---|---|---|
| Self-only | $6,450 | $537.50 |
| Family | $13,100 | $1,091.66 |
What your employee needs
To receive tax-free QSEHRA reimbursements, your employee must have minimum essential coverage — a marketplace plan, Medicare, or coverage under a spouse's employer plan all qualify. That last one matters: a QSEHRA can work even when your employee is on a spouse's plan, which an ICHRA generally cannot reimburse.
The marketplace subsidy interaction
If your employee buys coverage on Healthcare.gov with a premium tax credit, a QSEHRA doesn't make them ineligible — but their credit is reduced dollar-for-dollar by the QSEHRA benefit. For lower-wage employees with large subsidies, run the numbers before assuming the QSEHRA leaves them better off.
ICHRA: the no-limit option
An Individual Coverage HRA lets you reimburse your employee, tax-free, for the cost of their individual health insurance premiums and qualifying out-of-pocket medical expenses. The reimbursements are excluded from wages and not subject to either side of payroll tax — and unlike the QSEHRA, there is no annual contribution cap.
Why this matters for household employers
Most household employees don't have employer-sponsored health coverage. Many buy individual plans on the exchange (Healthcare.gov or state marketplaces). Reimbursing some or all of their premium through an ICHRA:
- Improves their effective compensation without raising their tax bill
- Reduces your employer payroll taxes
- Helps with retention — health insurance is a meaningful loyalty driver
- Doesn't require you to negotiate group plans or work with insurers directly
Typical contributions we see range from $50 to $200 per month, but you can contribute as little or as much as you want.
What's required to set it up
- A written notice to your employee at least 90 days before the plan year starts. The IRS provides a template. The notice describes the HRA terms and helps the employee determine if their existing coverage qualifies.
- Annual proof of health coverage from the employee. They need to have an individual health insurance plan (Healthcare.gov, off-exchange, or Medicare Part A+B / Part C). Without coverage, the HRA isn't valid.
- Ongoing proof of coverage with each reimbursement. A simple attestation (template available from the IRS) signed each month.
- Process reimbursements through payroll. Track separately as non-taxable reimbursement.
Eligible expenses
Any medical expense listed in IRS Publication 502 qualifies. This is broader than just premiums — it includes copays, deductibles, prescriptions, dental, vision, and many other medical costs. You decide which categories your HRA covers when you write the plan.
Which one fits your household
Quick check: match the option to your situation
Edge case: if your employee is covered under a spouse's employer plan, an ICHRA can't reimburse those premiums — a QSEHRA may still work, but the details depend on how the spouse's premiums are paid. Confirm before promising it.
Setting it up right
Whichever formal route you choose, the sequence is the same:
- Decide the monthly amount and whether it covers premiums only or premiums plus out-of-pocket costs.
- Put the plan in writing and deliver the required employee notice — at least 90 days before the plan year (or at hire for a new employee).
- Collect proof of coverage before the first reimbursement, and an attestation with each one.
- In Nest Payroll, go to create a pay stub and enter the reimbursement amount as a "Non-Taxabale Reimbursement => Health Care", tracked separately from wages so the W-2 comes out right.
Resources & free tools
Ready to pay your household employee legally?
Nest Payroll handles payroll calculations, tax filings, non-taxable reimbursement tracking, W-2s, and Schedule H — all automatically. 14-day free trial.
Disclaimer: The information on this page is general in nature. This is not tax, legal, benefits, financial, or HR advice. HRA rules, contribution limits, and ACA subsidy interactions change over time and depend on your employee's specific coverage — consult a licensed benefits advisor, attorney, or tax professional for your situation.
Nanny Health Insurance: Stipends, QSEHRA & ICHRA
Helping your nanny or caregiver with health insurance is one of the strongest retention moves a household employer can make — but the way you do it decides whether the money is taxed. A cash "health stipend" is taxable wages. A formal reimbursement arrangement isn't. Here's how the three options compare for 2026, and how to set each one up.
Start Payroll Free →Three ways to help — and how they're taxed
There are three legitimate ways for a household employer to put money toward an employee's healthcare. They differ mainly in tax treatment and paperwork:
| Option | Tax treatment | 2026 annual limit | Best for |
|---|---|---|---|
| Cash stipend / raise | Taxable wages — income tax + payroll tax, both sides | None | Simplicity; no plan documents |
| QSEHRA | Tax-free reimbursement | $6,450 self-only · $13,100 family | Modest monthly support with a formal cap |
| ICHRA | Tax-free reimbursement | No limit | Larger contributions; employee has their own individual plan |
The tax difference is not small. Reimbursements through a QSEHRA or ICHRA are excluded from wages entirely — no employer payroll tax (7.65% FICA), no employee payroll tax, no income tax withholding on the benefit. The same dollars paid as a stipend are taxed on both sides like any other pay.
The cash stipend: honest, simple, taxed
A stipend is just extra pay earmarked for health costs. It runs through payroll like any other wages: you pay employer FICA on top of it, and your employee pays FICA and income tax out of it. There's nothing wrong with this — it's the simplest option, there are no plan documents or notices, and your employee can spend it however they like.
QSEHRA: the small-employer reimbursement account
The Qualified Small Employer Health Reimbursement Arrangement was built for employers with fewer than 50 full-time-equivalent employees who don't offer a group health plan — which describes essentially every household employer. You commit to a monthly reimbursement amount, your employee submits proof of coverage and expenses, and reimbursements up to the annual cap are free of income and payroll tax on both sides.
2026 contribution limits
| Coverage | Annual max | Monthly equivalent |
|---|---|---|
| Self-only | $6,450 | $537.50 |
| Family | $13,100 | $1,091.66 |
What your employee needs
To receive tax-free QSEHRA reimbursements, your employee must have minimum essential coverage — a marketplace plan, Medicare, or coverage under a spouse's employer plan all qualify. That last one matters: a QSEHRA can work even when your employee is on a spouse's plan, which an ICHRA generally cannot reimburse.
The marketplace subsidy interaction
If your employee buys coverage on Healthcare.gov with a premium tax credit, a QSEHRA doesn't make them ineligible — but their credit is reduced dollar-for-dollar by the QSEHRA benefit. For lower-wage employees with large subsidies, run the numbers before assuming the QSEHRA leaves them better off.
ICHRA: the no-limit option
An Individual Coverage HRA lets you reimburse your employee, tax-free, for the cost of their individual health insurance premiums and qualifying out-of-pocket medical expenses. The reimbursements are excluded from wages and not subject to either side of payroll tax — and unlike the QSEHRA, there is no annual contribution cap.
Why this matters for household employers
Most household employees don't have employer-sponsored health coverage. Many buy individual plans on the exchange (Healthcare.gov or state marketplaces). Reimbursing some or all of their premium through an ICHRA:
- Improves their effective compensation without raising their tax bill
- Reduces your employer payroll taxes
- Helps with retention — health insurance is a meaningful loyalty driver
- Doesn't require you to negotiate group plans or work with insurers directly
Typical contributions we see range from $50 to $200 per month, but you can contribute as little or as much as you want.
What's required to set it up
- A written notice to your employee at least 90 days before the plan year starts. The IRS provides a template. The notice describes the HRA terms and helps the employee determine if their existing coverage qualifies.
- Annual proof of health coverage from the employee. They need to have an individual health insurance plan (Healthcare.gov, off-exchange, or Medicare Part A+B / Part C). Without coverage, the HRA isn't valid.
- Ongoing proof of coverage with each reimbursement. A simple attestation (template available from the IRS) signed each month.
- Process reimbursements through payroll, which is easy to do with Nest Payroll. Track separately as Non-Taxable Reimbursement => Health Care.
Eligible expenses
Any medical expense listed in IRS Publication 502 qualifies. This is broader than just premiums — it includes copays, deductibles, prescriptions, dental, vision, and many other medical costs. You decide which categories your HRA covers when you write the plan.
Which one fits your household
Quick check: match the option to your situation
Edge case: if your employee is covered under a spouse's employer plan, an ICHRA can't reimburse those premiums — a QSEHRA may still work, but the details depend on how the spouse's premiums are paid. Confirm before promising it.
Setting it up right
Whichever formal route you choose, the sequence is the same:
- Decide the monthly amount and whether it covers premiums only or premiums plus out-of-pocket costs.
- Put the plan in writing and deliver the required employee notice — at least 90 days before the plan year (or at hire for a new employee).
- Collect proof of coverage before the first reimbursement, and an attestation with each one.
- In Nest Payroll, go to create a pay stub and enter the reimbursement amount as a "Non-Taxabale Reimbursement => Health Care", tracked separately from wages so the W-2 comes out right.
Resources & free tools
Ready to pay your household employee legally?
Nest Payroll handles payroll calculations, tax filings, non-taxable reimbursement tracking, W-2s, and Schedule H — all automatically. 14-day free trial.
Disclaimer: The information on this page is general in nature. This is not tax, legal, benefits, financial, or HR advice. HRA rules, contribution limits, and ACA subsidy interactions change over time and depend on your employee's specific coverage — consult a licensed benefits advisor, attorney, or tax professional for your situation.