Here is how you can save money by hiring childcare.
Let’s face it, child care is expensive! So why not take advantage of your options to get the most out of your child care costs. Below we discuss some quick ways you can earn tax savings on your costs of childcare.
Here are some MUSTs!
- Typically have to be a single filer or MFJ (married filing jointly)
- Your reason for childcare is “to assure the individual’s (your child) well-being and protection”
- Total allowed expenses for one child or qualifying individual is up to $3,000
- Total allowed expenses for more than one child or qualifying individual is up to $6,000
- Qualifying children are under the age of 13 when the care is provided OR older than 13 but physically or mentally unable to provide self-care
(Authoritative Source: https://www.irs.gov/taxtopics/tc602)
Here are some FAQ’s.
Qualifying Child Tests
- Relationship – son, daughter, foster, adopted, grandchild, nephew, niece + more
- Age – under 13 for the child and dependent care credit
- Residency – the child has to have the same residence as you for more than half the year
- Joint Return – the child cannot file their own joint return
Should I Put My Nanny (or Manny) on Payroll?
People often ask if they need to put their nanny (or manny) on payroll. The answer is YES! Paying your nanny (or manny) “under the table” seems easier + cheaper, but it’s illegal and does not give a lot of consideration to the individual caring for your child while you work.
Thinking of putting your nanny (or manny) on payroll would help you remain legally compliant while showing you care for your nanny (or manny) by:
- Affording them an opportunity to get government assistance (during COVID, those paid under the table are not less likely to receive government funding than if they were on payroll)
- Allowing them a chance to strengthen their social security history and better plan for retirement
- Helping them remain healthy + strong to continue to care for your child by having the opportunity to acquire affordable healthcare
“Paying legally sets you up to take advantage of tax credits for dependent care. Finally, you never know when you might get nominated for the Supreme Court. And, we all know how that ends if you haven’t paid your nanny taxes.” Check out this Poppins Payroll that allows to to seemlessly run payroll for your child’s caretaker.
You work hard to be the best for your business and your family, it’s time for you to get rewarded for all your hard work. Talk to a tax preparer today!