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Use a Dependent Care Account to Help Pay Nanny or Caregiver Expenses

Posted by HomeWork Solutions on 11/10/20 4:07 PM
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When you first hire your nanny or caregiver, there are a lot of different action items that need to get set into motion. Defining wages, determining hours, setting up legal payroll and writing an employee contract are some of the primary things that need to be settled at the get-go. Investigating how to navigate tax breaks you might have when hiring an in-home employee is another big one. If you’re wondering if you can use your dependent care flexible spending account, here are some of the basic things you should know.

All about Dependent Care Accounts

A Dependent Care Account is simply a pre-tax expense account that can be used to help pay for dependent care that is needed for parents that work. The accounts need to be provided by the parent’s employer as part of a flexible benefit plan. To take advantage of this for your nanny or caregiver expense, you must be paying the caregiver "on the books" and you will need to enroll for this benefit during the open enrollment time specified by your employer. 

It’s important to note that expense reimbursement procedures are set by the plan administrator in compliance with government guidelines. The family maximum pre-tax contribution is $5,000 per per year.

Setting aside funds into this account can save families significant money at the end of the year because it means that you will not pay any FICA or income taxes on that portion of your income. Depending on what tax bracket you fall into, this could save families $2000 or more each year in taxes!

It's OPEN SEASON for many families - a time when you can make adjustments to your employer benefits package. Now is the time to enroll!

If you have questions about the ins and outs of hiring a nanny or caregiver, our team of experienced professionals can help, so contact us today!

Topics: nanny, agency, senior, CPA

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