It’s back-to-school time! Parent-teacher conferences are approaching and it’s helpful to go in prepared with the right questions. Having a good conference with your kids teachers is a great way to start off the year!
Check out this article by nprEd with some insightful tips on how to best use this conference time with new teachers!
What’s the one thing about back to school that’s hard for your family? Is it making lunches? Getting everyone out the door on time?
For Todd’s family, transportation was the problem. Shuttling the kids to all of their activities was wreaking havoc on family time—but with a little help, they were able to get everything on track!
Check out Todd’s story! What is a back to school hassle for your family?
It may seem like summer just started, but back-to-school season is here and many parents are getting a head start on their nanny hiring process! Our tax experts want to arm you with all the information you’ll need to budget correctly and make the right tax and payroll decisions. Here’s what you need to know…
Are caregivers household employees… or independent contractors?
The first thing to understand is that the IRS considers nannies, senior caregivers, housekeepers, etc. to be employees of the families for whom they work. Some families make the mistake of misclassifying these workers as independent contractors (by providing them with a Form 1099 at the end of the year). This legal error can be very expensive for both parties – the employer is exposed to tax evasion charges and large IRS penalties while the employee has a higher tax rate and fewer benefits. Instead, families should report wages paid to their employee using Schedule H and provide her with Form W-2 at year-end.
Budgeting and tax breaks…
You may be wondering how much to budget for employer taxes. Here’s the good news…thanks to tax breaks, it’s probably much less than you think! The employer taxes fund benefits for the employee (i.e. Social Security, Medicare, Unemployment) and average about 10% of the gross wages.
Did you know that the childcare tax breaks can offset most of that 10% cost – some families even come out ahead! There are several factors that will affect your individual employer budget. Use our free Nanny Tax Calculator for a quick estimate. Most people are pleasantly surprised.
Gross wages vs. Net pay…
Gross wages refers to the amount paid to an employee before her taxes have been withheld. The government requires that all compensation be reported in terms of gross wages. Net pay (a.k.a. “take-home pay”) is the amount the employee gets each payday after taxes have been withheld. When discussing compensation with a prospective employee, we strongly encourage families to use gross wages. If you want to help an employee understand what her net pay will be, feel free to run scenarios with her using our Employee Paycheck Calculator or print out sample paystubs.
Don’t forget to tune into an informational webinar on household payroll and tax obligations on September 11th, at 8:00pm EST and 11:00pm EST. Learn more at myHomePay.com.
If you have questions, please don’t hesitate to give us a quick call at Toll Free 1-888-273-3356. We’re here to help!
Hiring a nanny or babysitter to become part of your family and work in your home is one of the most important hires you will ever make. Our global tax experts, Leslie Forde and Tom Breedlove will be offering a webinar for those interested in household payroll and tax obligations on September 11th, at 8:00pm EST and 11:00pm EST. Learn more at myHomePay.com.
Register for our 8:00pm EST or 11:00pm EST webinar and learn great tax tips that could help your family-like tax breaks!
When families start the nanny hiring process, there are lots of questions about the cost. Are there tax breaks available? Which one should I use? Are there income restrictions? How much should I budget?
Here’s what you need to know: All families who pay their employee legally are entitled to at least one tax break, regardless of their income level. The only restrictions are that the children under care must be under age 13 and both parents must pass the “work-related test,” meaning each is employed, looking for employment or a full-time student.
For many families, the tax savings offset most of the employer tax cost. For some, the savings can even exceed the cost of their employer taxes (yes, it’s possible to come out ahead financially).
Here are the two childcare tax breaks: Dependent Care Account (FSA). Many companies offer their employees the option to contribute up to $5,000 of their pre-tax earnings every year to an FSA. Because paying nanny taxes qualifies as a childcare expense, you can take advantage of paying these expenses tax-free. Depending on your marginal tax rate, this tax break can save as much as $2,300 per year. If you think your company offers an FSA program, we recommend that you talk to the benefits manager about enrollment. Open enrollment usually occurs in the fall for the subsequent tax year, but there are exceptions for life-changing events such as the birth of a child that may allow you to enroll in this tax year.
Child and Dependent Care Tax Credit. Household employers are entitled to a 20% tax credit on childcare expenses of up to $3,000 for one dependent ($600 savings) or up to $6,000 for two or more dependents ($1,200 savings). You can claim this tax credit by completing IRS Form 2441 as part of your personal income tax return at year-end.
If you only have one dependent under age 13, you’ll have to choose between the two tax breaks. For most families the FSA is the best option.
If you have two or more dependents under age 13, you can take advantage of both tax breaks if your childcare expenses were greater than your FSA contribution. Excess expenses (up to the $6,000 expense limit) may be applied to the Child and Dependent Care Tax Credit on Form 2441.
To calculate your employer budget, visit our free Nanny Tax Calculator. With these significant breaks, most families find that paying a nanny legally is not only the right thing to do, it’s also the wise thing to do!
Don’t forget to check out our webinars and we’ll help you:
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