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I have heard that I can get a personal income tax break for child care? Does this apply when I hire a nanny?

When you hire a nanny you may qualify for a personal income tax break. There are two popular strategies that families with child care expenses use to minimize their personal income taxes. Many families can utilize a dependent care flexible spending plan (cafeteria plan) offered by their employer for child and dependent care expenses. Your human resources department can provide you with plan details. Another strategy is the Child Care Credit available to many parents. This credit can directly reduce the parent’s income taxes by between $600-$1,440 a year.

To be eligible for any childcare tax breaks, the family has to legally report the wages paid to the nanny or caregiver and remit the necessary employment taxes. Many families find that the tax break offsets the cost of the payroll taxes for the nanny, thus easing the financial burden of tax compliance.

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