August 3, 2012
After 20 years of helping families through the nanny employment process, we've found that there's an almost universal misperception that the employer taxes (a.k.a. the "nanny taxes") will add significant costs and make hiring a nanny unaffordable. The fact is most families are entitled to one or more childcare tax breaks that can offset the vast majority of the employer tax cost. Some families -- especially those with short-term or part-time care -- will realize tax savings that far outweigh their nanny tax obligations.
To help families who are hiring a caregiver budget for employer taxes -- and the accompanying childcare tax breaks -- we have created a free Nanny Tax Calculator. All you need to do is plug in the weekly pay, what state you live in, whether you or your spouse have access to a Flexible Spending Account and how many children you have under age 13. Chances are, you'll be pleasantly surprised at the cost.
Using this free tool early in the hiring process will help you budget properly so you can focus your nanny search on candidates in your price range. If you're in the hiring process, good luck! And please call us if you have any questions about tax breaks or any other tax or legal aspect of being a household employer.
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.
April 30, 2012
Considering a summer nanny? If so, you may be pleasantly surprised at the tax consequences. Most families with summer nannies (or any temporary or part-time caregiver) find that their tax breaks are greater than their tax costs -- so they actually come out ahead financially by putting their caregiver on the books. For an estimate of your costs and tax breaks, visit our free Nanny Tax Calculator.
April 9, 2012
If you and another family employ a nanny in a NannyShare or CareShare situation, the state and federal tax agencies consider each family to be a separate employer.
That means each family has separate "nanny tax" obligations on their portion of the wages. But, it also means each family is entitled to tax breaks on their portion of the wages. Many families are pleasantly surprised to learn that their savings from the childcare tax breaks are greater than their employer taxes -- this is especially true in NannyShare, part-time and summer nanny situations.
To calculate your savings, enter your portion of the nanny's wages into our free Employer Budget Calculator.
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.
January 28, 2011
NannyShares or CareShares have become popular with families who are willing to sacrifice some flexibility in exchange for lower costs. In addition to splitting the wages, families are also able to split the employer tax costs.
When set up correctly, both families are also able to take advantage of the tax breaks for childcare expenses, which usually more than offset the employer tax cost.
For an estimate of your tax costs and tax breaks, visit our free Employer Budget Calculator or give us a quick call.