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Can my nanny be deducted as a business expense?

Posted by HomeWork Solutions on 3/3/20 5:02 PM
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Can my nanny be a business expense_

Many nanny employers are sole proprietors, operating their own small businesses, law practices, medical or accounting firms. These nanny employers turn to nanny care because they need the flexibility in their childcare to allow them to focus work time on growing their businesses. They honestly could not do it without in-home childcare, so it seems logical to pay your nanny through your business, right? Wait a minute, the tax code does not agree with you!  

IRS Pub 926 Sole ProprietorIf you are putting in long hours at your personal business and need a nanny to take care of your children in your absence, it might seem like a natural thing to have your business pay for it. However, this is not the case. According to the IRS, nannies cannot be considered a business expense and it is a best practice not to include them in your business payroll. The nanny is your personal household employee and her salary cannot be treated as a business expense. She works in your household, not at your company. Therefore, no part of her salary or benefits, including unemployment or worker’s compensation, can deducted as a legitimate business expense. Co-mingling your household and business payroll creates bookkeeping complexities as these expense need to be separated for tax returns, and my have negative repercussions with your workers' compensation insurance as this insurance is rated by occupation.  

All is not lost!

Do remember, however, that you may qualify for a Child and Dependent Care tax credit on your personal tax return! The tax code does help working families pay for their childcare expenses, but it won't let you write these expenses completely off!

Hiring a nanny to work in your home means you are a household employer and you are responsible for paying her wages while withholding proper taxes. If you have never figured out how to properly set up a pay stub, it can be challenging at first. The stub should be itemized to include the following:

  • Date of wage payment
  • Dates of pay period covered by the payment
  • Gross wages paid
  • Net wages paid
  • Hours worked during pay period
  • Wage deductions
  • Additions to wages (bonuses, overtime, etc.)

Not sure you want to oversee your nanny’s salary, tax withholding, or benefits? Don’t worry! Our experienced professionals at HomeWork Solutions can do all the work for you. Contact us today for information on getting started.


Topics: nanny, agency, CPA

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