We get a lot of questions toward the end of each year about tax breaks and how to catch up on paying taxes. Below are answers to those questions from Breedlove & Associates, the industry leader in household employer tax and payroll services.
Ask the Tax Expert: Year-End Nanny Tax Breaks
By Stephanie Breedlove, founder of Austin-based Breedlove & Associates, the nation’s leader in tax & payroll services for household employers
Question: I hired a nanny in September. Are there any tax breaks I can take advantage of this year?
Answer: Yes, there are two tax breaks available to household employers – but they are only available to you if you filed quarterly tax returns to the state and IRS. If you have not been paying legally in 2009 and you’d like to get caught up, call us and we can walk you through the process (this is a very common occurrence since most people want to do the right thing and just get busy and forget).
Once you’re caught up and compliant, you’ll be able to take advantage of the Child or Dependent Care Tax Credit. If you have one dependent, the tax credit will save you $600; if you have two or more dependents, you’ll save $1,200.
Good News! Congress is currently considering bills that would update the expense limits and therefore increase these savings dramatically. Experts predict that the savings will change to $2,100-$3,000 for families with one dependent and $4,200-$6,000 for families with two or more dependents. This savings will be available each and every year – providing welcome financial relief for working families.
The other tax break is the Dependent Care Account (a.k.a. “Flexible Spending Account”) which is a federal benefit program offered through companies. If you’re already enrolled at your office, you are able to immediately take advantage of this tax break on any 2009 qualified childcare expenses. The Flexible Spending Account typically saves household employers between $2,100 and $2,300 per year, regardless of the number of dependents. If you are not enrolled, we encourage you or your spouse to check with your HR or Accounting department to see if you can enroll for next year. (Most companies have their annual enrollment period right now so check immediately; if you don’t enroll now, you may not be able to take advantage of this tax break until 2011).
You may be wondering, “which one of these tax breaks should I use?” It is possible to use both tax breaks in the same tax year, but you cannot use both tax breaks on the same dependent care expenses so there are fairly complex tax strategies that come into play. Call us toll free at 1-888-273-3356 or visit us online at www.breedlove-online.com. As a client of GoNannies.com, we’re happy to provide a complimentary phone consultation to help you maximize your tax breaks this year and get you set up for 2010 and beyond.
If managed correctly, the tax breaks for employers can offset – sometimes even exceed – the employer tax costs. (Yes, those who pay legally can actually come out ahead. When the new legislation is enacted, this will become several thousand dollars per year for most families). Plus, your employee will get access to important benefits such as Social Security, Medicare, Unemployment Insurance, Earned Income Credit, and the ability to borrow money.
Founded in 1992 — by household employers for household employers — Breedlove & Associates has served more than 16,000 clients and processed more than $1.5 billion in household payroll. By focusing on the unique needs of household employers, Breedlove & Associates’ expertise and efficiency has been recognized in The Wall Street Journal, Kiplinger’s, Business Week and SmartMoney.com. For more information or a free phone consultation compliments of GoNannies.com, call 1-888-273-3356 or visit www.breedlove-online.com.
We are getting ready to hire our first nanny, and I definitely will be paying my nanny legally so that we can take advantage of these tax breaks! Thanks for the information!
Glad we could help
I didn’t realize my flex spending account could be applied to childcare!! (incentive to read all that fine print and paperwork more closely
) Thanks for the heads up!
Haha! It’s always nice to find out new ways to save money!
In the past, I’ve felt like it can get overwhelming trying to figure out all the right avenues to take to ensure that both my nanny and myself come out ahead when it comes to paying her legally, etc. From now on, I will definitely be trusting all of my tax and payroll concerns to Breedlove!
All the intricacies that come with managing a household employee can definitely get confusing – we’re just happy we can help you find a way to make the whole process a little bit easier!
as a nanny, i’ve been on both sides – having been paid under the table and legally on the books. I can tell you firsthand that even though it may seem like a better deal to get paid off the books, it definitely pays to do everything legally!