March 30, 2012
If you hired a caregiver for your dependent child (or parent) in 2011, you may be entitled to the Child or Dependent Care Tax Credit. Qualifying expenses include wages paid to caregivers, taxes paid on those wages, fees paid to a placement agency to help you find the caregiver and any daycare or daycamp fees (overnight camps may not be included).
You can itemize up to $3,000 per dependent per year (up to a maximum of $6,000). If you utilized a Flexible Spending Account, you'll have to deduct those funds from your total.
To qualify for the tax credit, your child(ren) must be under age 13 and you must pass the "work-related test," which means that the care expenses were necessary so that you and your spouse can work, look for work or go to school full-time.
The expenses are itemized on Form 2441 and included with your federal income tax return, which is due April 17, 2012. Click here for more information about tax breaks for care-related expenses.
December 16, 2011
As we wave good-bye to 2011, it's time to tidy up any loose ends on taxes. If you hired someone to work in your home (i.e. nanny, nurse, housekeeper, chef, personal assistant, etc.) and paid them $1,700 or more, you have household employment tax obligations (a.k.a. "nanny taxes"). See Compliance Checklist for details. Taking care of the reporting requirements has several benefits:
1) AUDIT & LAWSUIT PREVENTION. Families who pay legally don't have to worry about audits, tax evasion charges or legal disputes levied by disgruntled former employees. Think of it as insurance against tax and legal problems.
2) TAX BREAKS. There is a common misperception that “nanny tax” compliance will be prohibitively expensive. The truth is most families with childcare expenses qualify for tax breaks that largely offset – sometimes even exceed – the employer tax costs. (See “Dependent Care Tax Breaks” for more details or visit our Employer Budget Calculator to get an estimate of your tax breaks).
3. PROFESSIONAL BENEFITS. When a family pays legally, the employee receives important short-term and long-term benefits, such as social security, medicare, unemployment, and an ability to obtain loans/credit. These benefits and protections have a dramatic impact on the perceived professionalism of the position and, therefore, the quality and duration of the employment relationship.
If you'd like to learn more about the Breedlove No-Work, No-Worry way to handle your obligations, watch this brief video or give us a call. We're here to help.