We understand you may encounter working for a family that does not want to pay taxes for employing a nanny. Ask us for help in explaining to the family that it is truly in their best interest to pay you properly and legally. Some of the following reasons may also help:
- There are two main tax breaks that can offset your employer’s tax costs. By legally employing someone in their home (paying “on the books”), they will be able to take advantage of one of the two following tax breaks:
- Dependent Care Assistance Program (DCAP) – Most companies provide this benefit and allow employees to contribute up to $5000 of pre-tax earnings to a Dependent Care account. They would then be reimbursed these tax-free funds to cover childcare expenses.
- Child and Dependent Care Tax Credit – For those who don’t have access to a Dependent Care Account, they can claim the Child and Dependent Care Tax Credit (Form 2441) on their personal income tax return at year-end. They can claim up to $3,000 of the un-reimbursed qualifying child care expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals. The credit can be anywhere from 20% to 35% of their qualifying expenses.
- Your employer has to report your wages and the taxes they withheld for you on their personal income tax return. The IRS figures to catch a lot of people who forget to tell them about their nannies.
- You can receive workers’ compensation, which in turn protects your employer if you get hurt on the job.
- You will be eligible for Social Security and Medicare benefits, as well as unemployment insurance.
- You will have a legal employment history, which is necessary to obtain a mortgage, car loan, or credit card.
- Because it’s the law!
Need to point your employer in the right direction to pay you legally? Our partner GTM Payroll Services works with hundreds of families, nannies, and agencies around the country, helping them sort out taxes and comply with the nanny tax laws of the IRS and their state. This helps ensure a healthy working relationship between the family and their nanny.
For more information, please contact us today at (518) 348-0400.