Au Pair and Nanny Tax Information, Tax Deductions
If you have an au pair or nanny, or are thinking of hiring one, you better know about nanny tax.
The issue of nanny tax has always been a confusing topic for families who employ an au pair or a nanny either full-time or part-time. But it does not have to be. Today's regulations are clear and concise, taking the mystery out of nanny tax forever.
Before 1994, however, au pair and nanny tax information was not so clear. But in 1994, Congress revised "nanny taxes", stripping them down to the bear bones. Today the rules are simple.
Employers must disclose salaries paid to all domestic help in their home on their personal income tax returns. Those rules are simpler than the ones for "Candy Land!"
A full service agency will be able to answer many of the questions you may have regarding au pair and nanny tax information. A good Certified Public Accountant, however, is your safest bet. He or she will be able to advise you on how to financially conduct your agreement with your au pair or nanny, and how to stay compliant.
Common au pair and nanny tax information questions:
If I have a domestic (nanny, au pair, governess, caregiver, etc.) working in my home, what taxes do I need to pay?
The Internal Revenue Service requires payroll tax filings by a domestic employer. These payroll tax obligations that may include:
- Social Security & Medicare Taxes
- Federal Unemployment Tax (FUTA)
- State unemployment and disability insurance taxes levied on the employer
- Advance payment of the earned income credit for eligible employees
What taxes dos my au pair or nanny have to pay?
Your au pair or nanny will be required to pay:
- Social Security & Medicare Taxes
- Employee Disability / Unemployment Taxes
- Federal / State Income Taxes
My domestic (nanny, au pair, governess, caregiver, etc.) tells me that she is an independent contractor and doesn't want taxes withheld. Can I do that?
No, no, no. The IRS has very strict guidelines that define employees and independent contractors (IRS Publication 926). Au pairs, nannies and other domestics are generally considered employees. The fact is that it does not matter how the employee refers to herself or how you refer to her in an employment contract. You are obligated for all payroll tax filings and remittances. If you and your au pair or nanny are not in agreement, then let your CPA decide.
Is it true that I can get a personal tax break for my childcare expenses?
Yes. And there are two different strategies that you can use to minimize your personal income taxes. The most well known is the flexible spending plan (cafeteria plan) offered by your employer for child and dependent care expenses. Check with your human resources department for plan details. Another, and not so well known, strategy is the Child Care Credit available to parents. This credit can directly reduce a parent's income. Speak with your CPA about the details of this one.
This is very basic au pair and nanny tax information and it may differ from state to state. It is always the best strategy to speak with your CPA or tax preparation office. When in doubt, it is always better to get the answers than have an unexpected tax bill dropped in you lap, or have your au pair or nanny strapped with a tax bill she can not pay.
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