Domestic workers (nannies)

[Guest Dolores]

Can a Section 125 plan be established for a family's Nanny so that she can use the plan for medical reimbursement pre-tax (medical FSA)?

[Bob R]

I could be wrong on this...but my recollection is that the "employer" must be engaged in a trade or business to establish the plan. Thus, the family that employes the nanny can't establish a plan. There are no oridnary and necessary "business expenses." However, the nanny is a self-employed individual - but that leads into the issue that has been covered in numerous other threads about sole propoprietors being unable to have a plan.

[namealreadyinuse]

Do you W-2? If so, I believe domestic employees are ok. The W-2 is the key. BUT, what you want is an HSA if he/she can get a HDHP.

[Guest Dolores]

Do you W-2? If so, I believe domestic employees are ok. The W-2 is the key. BUT, what you want is an HSA if he/she can get a HDHP.

She is a W-2 employee of the family. The family pays her salary which is reported on the W-2 and the family also pays for her medical insurance premiums. They just want her to be able to use an FSA to cover her out-of-pocket medical expenses -though as you say, they should check out the HSA alternative. Just want to confirm for them that the FSA is feasible if that's what they want - can the husband/wife sponsor the FSA as the employer for the benefit of their W-2 employee is the question.

[GBurns]

Why an HSA instead of the FSA, or IMHO, an HRA?

I would do a comparison of actual costs for each before choosing any 1 over the other.

[Lori Friedman]

However, the nanny is a self-employed individual

A nanny is self-employed? How quickly can you say "Zoe Baird"?

[jmor99]

Is the family by chance an owner of another company that has an FSA in place? If so, I'm thinking you couldn't keep the nanny out of it (the other company FSA).

[rcline46]

Running a household is NOT a trade or business, therefore no controlled group, no ASG, no tax deferred plans of any nature sponsored by the household.

[Lori Friedman]

I believe that jmor99's referring to a weird little wrinkle in the law -- A sole proprietor has to include "nanny tax" on the Form 940 and Form 941 filed for the business, using the business's EIN. Unlike other household employers, a sole proprietor (who also has business employees) can't use Form 1040, Schedule H.