Ask nannies what benefit matters most and health insurance is near the top. Families often want to help but assume it's complicated or only for big companies. It isn't — and some approaches are completely tax-free, while others quietly add to the tax bill. Here's how to help the smart way.

The tax trap: a plain cash stipend

The instinct is to just add '$300/month for health insurance' to the paycheck. But a cash stipend with no strings is treated as taxable wages — you and your nanny both pay payroll tax on it, and it shows up on the W-2. It's a fine gesture, just not a tax-efficient one.

'Here's extra money for insurance' = taxable wages. To make health dollars tax-free, they need to flow through a qualified arrangement like a QSEHRA.

The tax-free way: a QSEHRA

A QSEHRA (Qualified Small Employer Health Reimbursement Arrangement) lets a small employer — including a household employer — reimburse a nanny tax-free for their individual health insurance premiums and certain out-of-pocket medical costs. Set it up correctly and the reimbursements are free of income and payroll tax for both of you.

  • You set a monthly or annual allowance and reimburse documented, eligible expenses up to it.
  • There are annual caps — for 2026, roughly $6,450 for an individual and $13,100 for a family (figures adjust yearly).
  • Your nanny must have qualifying health coverage (minimum essential coverage) for reimbursements to stay tax-free.
  • It reimburses actual expenses — it's not cash your nanny can pocket regardless.
A QSEHRA needs a written plan document and a way to verify expenses. Several affordable services set one up for household employers if you don't want to DIY it.

Other ways to help

  • Pay a premium directly to your nanny's insurer in some cases — but the rules are finicky, so a QSEHRA is usually cleaner.
  • Contribute to the marketplace — help your nanny shop a plan and cover part of it via a QSEHRA.
  • Higher gross wages — the simplest option: just pay more and let your nanny buy their own coverage (this is taxable, but honest and flexible).
Health-benefit rules are technical and change; getting the structure wrong can make an intended tax-free benefit taxable. This is general information, not tax or benefits advice — confirm with a professional before setting one up.

House keeps taxable wages and non-taxable reimbursements cleanly separated on every pay stub and the W-2 — free.

See how it's tracked

The bottom line

You can absolutely help your nanny with health insurance. A cash stipend is easy but taxable; a QSEHRA reimburses eligible costs tax-free within annual caps. Either way, offering health support is one of the strongest things a family can do to keep a great nanny for years.