We know the stress and uncertainty created by complicated tax and labor laws.
Use the tools and information here to clear up the confusion.
Good news! Household employers with dependent care expenses are entitled to tax
breaks – regardless of their income level – as long as both spouses are either
employed or a full-time student. For most families, the tax breaks offset
most – if not all – of the employer tax costs. In some cases, families even
come out ahead by paying legally!
There are two tax breaks available to household employers who pay legally:
Dependent Care Account (also commonly called a Flexible Spending Account).
Most businesses allow their employees to contribute up to $5,000 of their pre-tax
earnings to a Dependent Care Account to help pay for childcare expenses.
This means there is no federal income tax, state income tax or FICA taxes on that
$5,000 of your income. Depending on your tax bracket, this deduction will
save you about $2,100-$2,300 per year which will offset – sometimes
exceed – your employer tax liability. Companies have considerable leeway in how
these accounts are administered; check with your company’s HR department or Accounting
department to learn about your enrollment options. Once set up, we can provide
you with the paperwork you'll need to take advantage of this tax break.
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 personal federal income tax return at year end. This tax credit
saves $600 for families with one dependent or $1,200 for families
with two or more dependents.
IF YOU HAVE 2 OR MORE DEPENDENTS: please note that the
government allows families with 2 or more dependents to itemize up to $6,000
of dependent care expenses. Therefore, if you use $5,000 for your Dependent
Care Account, you may have an additional $1,000 in excess expenses that can
be claimed on Form 2441, which would save you an additional $200 per
year off your tax bill.
For an estimate of your tax breaks, give us a call or use our
Employer Budget Calculator.
Next: Medical Tax Breaks for Dependent Care
Get expert answers
to all your
nanny tax questions.
© Copyright 2013 Breedlove & Associates, LLC | Privacy & Security | Site Map