Many small employers who can’t afford to offer formal Health benefits decide to give employees a taxable stipend to use toward healthcare. While this option is easy to administer and saves time, the value of these dollars is lessened because a Health Insurance stipend is considered part of employees’ income—not a separate benefit.

This means that stipends have payroll and income tax implications that tax-free health benefits don’t have. What’s more, employers can’t require employees to prove they purchased health insurance with their stipend money.

So is a health insurance stipend a worthwhile option after all? In this article, we’ll look at the pros and cons of taxable Health Insurance Stipends, outline best practices, and discuss a tax-free way to offer your employees’ health insurance.