Summer Nanny Taxes
Special ‘Thank You’ to Stephanie Breedlove from Breedlove and Associates for this guest blog post!
The anxiety first hits around late-April: School is coming to an end! How ironic that summer vacation actually makes life more hectic until you get everything straightened out. My kids are grown now but I remember the panic: School was going to let out, my husband and I were working, and we needed someone to care for the kids, even if it meant shuffling and chauffeuring them from camp to playdate. What put me at peace was the realization that teachers had new summer schedules too, college students were on break, and teen sitters were out there looking for jobs. That’s still true today. TLC For Kids has great summer nannies looking for work. As you put your summer care plan in place – and exhale – play a quick game I like to call “Two Truths and a Lie: The Tax Edition.”
Who said taxes aren’t fun?!
1. My summer nanny is not an independent contractor.
Truth!
Many families think a temporary or part-time nanny is an independent contractor, but the truth is that you’re her employer.
So even if he or she only works for you during the summer, the nanny is your employee in the eyes of the IRS and is covered by special protections such as minimum wage and overtime.
2. I can pay a summer sitter cash because she’s temporary.
False!
You aren’t supposed to pay any nanny or sitter earning more than $1,800 a calendar year under the table!
3. You Can Get Tax Credit for Hiring a Summer Nanny
Truth!
Say you hire a nanny to take care of your kids for the 13 weeks of summer – and you pay her $500 per week, for a total of $6,500 over the summer. The employer taxes on this wage amount will be about $600 (or a total of $7,100).
That’s the cost side. Now for the good news: tax breaks.
If you have a Dependent Care Flexible Spending Account (FSA) through your employer, you can set aside $5,000 for childcare expenses using your pre-tax dollars. An FSA can save you as much as $2,300 per year, depending on your marginal tax rate. That savings will bring your total cost down to about $4,800.
By putting her on the books, you’ve saved roughly $1,700!
If you don’t have access to an FSA (or missed the enrollment period for this tax year), that’s okay. You can still use the Tax Credit for Child or Dependent Care (a.k.a. the “Childcare Tax Credit”). It will save you up to $600 if you have 1 child or $1,200 if you have 2 or more children, bringing your total cost down to either $5,900 (save $600) or $6,500 (break even).
Remember, these tax savings are only available if you pay your summer nanny on the books and fulfill your “nanny tax” obligations.
I hope you find a great caregiver and have a wonderful summer. Along the way, if you have any household employment questions, just let us know. We’re here to help (888-273-3356).