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Deductions for child care

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  • Deductions for child care

    Planning on likely hiring nanny in the fall as our family is growing by 2!  Wondering if there is a general idea if people think it is good to pay nanny and treat like employee (pay both ends of payroll taxes) and then be able to take the deduction on general taxes.   Still trying to crunch the numbers to figure out if would be a beneficial deduction.

     

    Thanks for any who have broached this before.

  • #2
    You do not have the option of treating a nanny as an independent contractor.  By law they have to be employees.  I found my nanny using care.com, they have information on this topic as well.  The only way you can avoid this is if you contract with a service that provides nanny services or if you are essentially dropping your kid of at your "nanny's" (daycare).

    The care.com crowd will charge you a tidy sum to manage payroll and take care of everything.  By the time you track all the hours to submit to them it is pretty easy to just do it yourself.

    We provide healthcare insurance to our nanny through the SHOP marketplace so that we can deduct some of the premiums (up to 50%) as a way to help our nanny in a way that is cost effective for us.

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    • #3
      Congratulations on having twins! You do not have the option to take a "deduction" for your nanny. You will qualify for a small child care credit or you can use up to $5,000 of your FSA (if available) but that is all.

      You also do not have to do payroll reporting through the year. You can gross up her payroll and reconcile when you file your 1040 in the first quarter of following year. Send in estimates throughout the year to lessen the hit when you file your 1040, but there is no need to pay any outside company to provide this service as your CPA/EA will perform all calculations at tax filing. If you will pay a salary so that she receives the same amount on each paycheck, it is fairly easy to figure out the gross amount so that you will withhold the appropriate taxes to pay in at the end of the year. Again, your CPA can help with this or you can use the Nanny Tax Tools site.

      Check with your state for specific regulations. The above is for federal reporting.
      Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        Thanks Johanna.  Tax credits are even better!  Will look into all of this.

         

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