June 22, 2012
In the United States, more babies are born in the summer than any other season. Why is that important? Because if you've just had or are about to have a baby and you anticipate childcare expenses in 2012, this tip may save you as much as $1,700.
If you or your spouse have access to a Flexible Spending Account ("FSA") at your office, you'll be able to pay for up to $5,000 of childcare expenses using pre-tax dollars. That means you'll pay no income taxes or Social Security or Medicare taxes on that portion of your income. That'll save you $2,000 to $2,300 per year, depending on your marginal tax rate.
Unfortunately, FSAs only allow enrollment once a year. If you're not already enrolled for 2012, you'll have to wait until 2013 -- unless you've just had a "life-changing event" (i.e. the birth of a child). If so, you have a 30-day window after the birth of your child to enroll.
If you miss the window or don't have acces to an FSA, you can still capitalize on the Child and Dependent Care Tax Credit. If you have one child, it'll save you up to $600 per year; if you have 2 or more children, you'll save up to $1,200 per year. For more information, visit our Expert Advice page.
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.
October 19, 2010
If you anticipate having childcare expenses in 2011 (i.e. nanny or daycare), now is the time to check with your company’s HR department to see if you have access to a Flexible Spending Account (FSA). If you or your spouse have access, you’ll be able to pay for up to $5,000 of your nanny expenses with pre-tax dollars. Depending on your marginal tax rate, this will save you between $2,000 and $2,300 each year.
Check now because most companies have open enrollment in the fall and, if you miss it, you’ll have to wait until the next enrollment period.
If you miss the enrollment period, you can still take advantage of the Child or Dependent Care Tax Credit. However, for most families, the savings are much less: $600 if you have one child or $1,200 if you have two or more children.
For more info on childcare tax breaks, visit our Answers section or give us a call.