Stephanie Breedlove and her husband founded
household employment payroll & tax company, Breedlove &
Associates out of a personal need – they wanted to pay
nanny taxes. Now part of the Care.com family, I can tell you I have never met a
more engaging tax professional! Here, she wants to make sure you get the money
back you deserve!
I love baseball. I had two boys, so maybe being a sports-mom was inevitable. Or maybe it’s in my Texas-blood. But I love going to the Texas Longhorns baseball games with my (now) college-aged "boys" and cheer for our home team.
The season just started here in Austin. So we were at a game recently when I overheard people sitting behind me talking about not getting a tax refund this year. They were surprised they actually owed about $2,000 to the government!
Now, ‘tis the season for tax talk. And call me a nerd, but this is the type of chatter that perks my ears up and gets my adrenaline pumping. Why? Well, I also happened to notice that this couple also had two young kids and looked like they had just come from work – I would have put money on the fact that they weren’t getting all the childcare tax breaks they deserved.
Often these tax breaks can take the sting out of paying nanny taxes in the first place. But because my sons begged me to keep my mouth shut, I didn’t tell this sweet couple the following ways I’m sure they could have saved some money.. but I’ll tell you:1. Learn How You Qualify
As long as you and your spouse meet the "work-related" test (both of you must be employed or a full-time student) and employ someone to provide care for at least one child under the age of 13, you qualify for one of the tax breaks below. Please note there are no income restrictions on these tax breaks – and you can capitalize on them even if you are subject to the Alternative Minimum Tax.2. Take Advantage of Flex Spending
Many companies offer Dependent Care Flexible Spending Accounts (also called "Flexible Spending Account" or "FSA") as an employee benefit. It allows you to set aside up to $5,000 of your pre-tax earnings to pay for childcare expenses (which includes nanny wages and nanny taxes). This means there is no federal or state income tax, Social Security tax or Medicare tax on $5,000 of your income. Depending on your state and your marginal tax rate, this can save you up to $2,300 per year.
Note: Most companies have a specific enrollment period to set up an FSA, but there are mid-year exceptions for "life changing events," such as having a child. See your HR department for enrollment details.3. Use the Child Care Tax Credit
If you don’t have access to an FSA, you can claim the Tax Credit for Child or Dependent Care (IRS Form 2441) on your federal income tax return at year-end. If you have one child, you can save up to $600 per year (20% on up to $3,000 in childcare expenses). If you have two or more children, your savings will be up to $1,200 per year (20% on up to $6,000 in childcare expenses).
If you want to know more about these tax credits, call our
Nanny Tax Experts at 888-273-3356 and let us answer any of your questions.
(We’re all tax nerds – so we love this stuff!) You can also talk to your personal
income tax professional, but make sure he or she has expertise in household
employer accounting (Test their qualifications with these
5 questions). This Nanny Tax
Calculator is also a fun place to see what you would pay your nanny on a
weekly or annual basis, and how tax credits will help.