We receive a LOT of questions from families about household employer taxes. Am I considered an employer? Am I required to pay taxes for my caregiver? How much are they? These are all great questions! The general answers are that people who pay a nanny or other caregiver to perform duties in or around their home ARE considered household employers and are required to pay taxes for their employee(s) if you pay that person $1,700 (2010) or more in a calendar year.
The great news is that by taking advantage of tax breaks such as Dependent Care Accounts/Flexible Spending Accounts and Child and Dependent Tax Breaks, families can often offset or even exceed their nanny tax payments. That means that by paying taxes legally, families can often actually save money!
Here are some resources and information related to household employer taxes that help shed some light on the benefits and requirements of paying taxes for household employees.
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I own my own business – can I add my nanny to the company payroll?
Hi Jason! Unfortunately, no you cannot place a nanny on company payroll because her wages cannot be applied to a tax deduction for toward employee wages. Those tax deductions are only for employees who benefit your business, whereas the nanny benefits your household. Tax breaks are available via the Child Care Tax Credit (IRS Form 2441) or a Dependent Care Account (FSA) to offset your household employer tax liability.
I know this is a little off topic, but I have a lot of nanny friends who have opted to forgo having taxes taken out of their check to be paid under the table instead, and while this does net you more money right away, it is NOT worth it in the long run!! Get your taxes, SS, etc. taken out of your checks!
This is a great point! Not only can employers get in a lot of trouble for not taking out the necessary taxes, but if the nanny were to lose her job she wouldn’t be able to prove employment/take advantage of unemployment.
Thanks for pointing that out!
can you use both a dependable care acct & a flex spending acct, or do you have to pick one or the other?
Hi Tanner! A dependent care account is a type of flexible spending account, so you’ll need to opt into this account. The dependent care account has a $5,000 max contribution limit, so you’ll save quite a bit of money (approximately $2,000) by taking advantage of the tax-free benefits.
These links are so helpful! Taxes are confusing enough on a regular basis – trying to figure them out as a household employer has been a nightmare for us. We’ll definitely be giving Breedlove a call and handing that responsibility over to them!