If you are working on growing your small business and you hire a nanny to help care for your children, or a caregiver to assist an aging parent, you might wonder if you can pay their wages through your business. Unfortunately, this is generally not allowed. According to the IRS, your household employee's wages are not considered a business expense.
Nannies, Caregivers, and housekeepers are your personal household employees. They work in your home, not for your company. You’re a household employer and for this reason, their wages and benefits are not considered a business expense because they do not contribute directly to the success of the business.
While this might be disappointing to discover, remember that you may be able to claim the child and dependent care credit on your personal tax return. The credit amount is determined on a sliding scale based on your adjusted gross income and is a percentage of a portion of your care related expenses.
You should also remember that your employee is not an independent contractor. In other words, you cannot give your nanny or caregiver a 1099 and let them take care of employment taxes on their own. This misclassification could be costly. If the tax authorities find out, you could be at risk of willingly misclassifying your employee, costing you a large amount in fines, penalties, and back taxes.
If you need assistance with managing your nanny’s payroll, including their tax withholding, and year-end tax documents, our experienced professionals at HomeWork Solutions can help. We have a variety of service plans that will fit your unique situation. Contact us today at 1-800-626-4829 to learn more!