Posts Tagged ‘childcare tax credit’
How to Use Your Childcare Tax Credit
April 15th is almost here and many of you are working on filing your taxes. Over the last few weeks TLC for Kids has received calls and emails about how to handle nanny taxes. We are not tax experts at TLC for Kids, so we recommend using Homepay for all your household employment needs. Here is some information on nanny taxes that you may find helpful.
Paying taxes tends to invoke negative feelings for most people. Fortunately for household employers, there’s a silver lining– tax breaks. As long as you and your spouse are working or are a full-time student and have at least one child under 13, you’re in a great position to make back most, if not all, of your nanny taxes. Here are two ways you can save:
1) Dependent Care Flexible Spending Account. Many companies offer their employees the option to set aside up to $5,000 of their pre-tax earnings into a Dependent Care Account to pay for childcare expenses. This means there is no federal or state income tax, Social Security tax or Medicare tax on $5,000 of either you or your spouse’s income. Depending on your state and your tax bracket, this deduction will save you anywhere from $2,000 to $2,300 per year.
2) Child Care Tax Credit. If you don’t have access to a Dependent Care Account, 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).
Great News! If you have two or more children under the age of 13, you can use a combination of these two tax breaks in order to achieve a maximum of $2,500 in tax savings.
For many families, the tax breaks will offset a large portion of the employer tax costs. This is especially true for those employing someone on a part-time, seasonal or NannyShare basis.
We hope you find this helpful. Please call TLC for Kids St. Louis 314-725-5660 or TLC for Kids Miami 305-256-5905 for your child care needs.