Friday, January 28, 2011

Health Insurance Tax Credit - Real Life Story

This is from our friends at Breedlove & Associates on the new Health Insurance Tax Credit. Valuable information for nannies and families.

The Situation
On January 4, 2011, we received a call from a family interested in our service. The family spent the month of November looking for a nanny on their own through Craig's List and some parenting sites. Realizing they needed help, they changed course in December and hired one of our partnering agencies. The agency found "the perfect nanny" and the deal was finalized on New Year's Eve. Cheers!
Knowing that the nanny wanted health insurance - and having just received our notice about the Health Insurance Tax Credit for Small Employers - the agency owner advised the client that they would be able to save money if they structured the compensation to include a contribution to the nanny's health insurance premium. Not only is the employer's health insurance contribution considered non-taxable (so neither employer nor employee has to pay taxes on that portion of the compensation), it also now creates an opportunity for a tax credit worth up to 35% of the contribution.
The owner advised the family to call us to get a quick, free consultation on the health insurance tax break as well as the tax breaks for childcare expenses.

The Law
The new Health Insurance Tax Credit was created to incentivize small employers to include health insurance within the compensation package. Those that do will realize a tax credit of up to 35% on every dollar they contribute beginning with the 2010 tax year.
In order to qualify, the employer must have fewer than 50 employees and the average annual compensation for their workers must be less than $50,000 per year. For an average annual compensation of $25,000, the tax credit percentage is 35%. (The percentage declines gradually as the average annual salary approaches $50,000). Additionally, there is an expense limit for each state that is based on the average health insurance premiums in that state (the expense limit is very high so it will not restrict the savings for most household employers).
These savings are in addition to the tax breaks for dependent care expenses, which can be realized through a Flexible Spending Account and/or the Child or Dependent Care Tax Credit. For more information about these tax breaks, visit our website at

The Outcome
When the family called us to get their complimentary personalized consultation, we ran payroll scenarios and showed them how they could save about $3,800 each year -- $2,500 through their childcare tax breaks and another $1,300 by making health insurance part of the compensation package.
Since their employer taxes for the year will be about $2,100, the family will come out ahead by about $1,700 per year!
The family had no idea there were any tax breaks so the $1,700 per year in savings felt like found money. They raved about the agency's financial stewardship and how the tax breaks will quickly "pay back" the agency placement fee. The giddy mother summed it up nicely, "we're getting a much better nanny than we could ever find on our own and it will end up costing us next to nothing because of the money they (agency) saved us...pretty sweet deal!"

The Bottom Line
New tax laws make the financial aspects of the relationship an increasingly important part of the placement. Together, we can bring families higher quality childcare while saving money and eliminating risk.

If you have additional questions, please call 888-BREEDLOVE (273-3356) or visit

1 comment:

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