I took a call from a new employer today, who asked "Are there any tax breaks for household employers?"
Many families hear the term "nanny taxes" and immediately conjur up images of complicated tax forms, expensive tax payments, and a massive headache. The fear and expense may even be enough to prompt some into paying under the table and avoiding the entire scenario. What many families don't know is that available childcare tax breaks often offset the majority of the family's nanny tax burden - and these tax breaks may actually exceed the family's nanny taxes all together. You should consult with professional tax preparer to find out if YOU are eligible to participate in either these available programs.
Dependent Care Flexible Spending Account (FSA)
You can pay your nanny or other household employee with pre-tax money through an employer sponsored Dependent Care Flexible Spending Account (if your employer offers this type of plan). This type of plan allows you to put aside up to $5000 of before tax money to pay for qualifying dependent care expenses. The amount is deducted from your paycheck and reimbursed to you. We have a special report we can send to you upon request to assist you in your reimbursement requests. Consult your employer's Human Resources department for details and consult your Tax Preparer to see how this may fit into your overall tax strategy.
Child and Dependent Care Tax Credit
If you do not have access to a Dependent Care Flexible Spending Account, you may be able to claim the Child and Dependent Care Tax Credit (Form 2441) on your personal income tax return. You can claim up to $3,000 of the un-reimbursed qualifying child care expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals. Consult your Tax Preparer to see how this may fit into your overall tax strategy.
These are not necessarily either-or options. In some cases you may be able to apply the Child and Dependent Care Tax Credit for amounts spent over the Dependent Care FSA limits, depending on your tax situation.
HomeWork Solutions specializes in providing families solutions for the "nanny tax" fear factor too! You don't need to deal with complicated forms and calculations - you can outsource to the professionals at HomeWork Solutions with confidence that you have experts on your side. Spend your time with your family, not your nanny taxes!
