Did you know that if you are a household employer that you may be entitled to a variety of tax breaks, regardless of what your nanny’s or senior caregiver's income level is? If you are paying your nanny or senior caregiver legally, there are two main tax breaks that you may be entitled to.
Dependent Care Account:
These are also known as Flexible Spending Accounts and are employer-sponsored accounts. Employees can contribute up to $5,000 of their pre-tax earnings to this account to help pay for childcare and dependent care (aging or disabled family members) expenses. That means that there is no federal income tax, state income tax, or FICA taxes on this portion of the income. Depending on what tax bracket you fall under, this deduction can potentially you save thousands of dollars each year.
Childcare or Dependent Care Tax Credit:
If you don’t have the option for a Dependent Care Account, you are able to claim the tax credit for a Child or Dependent Care on your personal federal income tax return at the end of every year. This tax credit can save families with two or more dependents up to $1200 a year. Qualifying dependents include stepchildren, foster children, grandchildren and certain other individuals who are physically or mentally incapable of self-care that live with you full time or whom you provide more than 50% of this person’s support for the entire calendar year. It is important to note that these dependents cannot be claimed on another person’s tax return.
Not sure what tax breaks you are entitled to? Hiring a professional nanny tax service ensures that you’ll get the appropriate tax breaks that you’re entitled to. This gives you confidence and peace of mind that you will be able to get everything that you can when you go to file your taxes at the end of the year. For some families, the tax breaks can help offset most of the employer tax costs, and sometimes families will even come out ahead.
Hiring a team of household payroll and tax specialists means that you won’t overlook any important benefits when it comes to tax breaks – you can trust that things are done right. Contact us today to find out which services you need and which service package will work best for your situation.