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Nanny Tax Deductions for Household Employers

Household employer running payroll and compiling tax deductionsAs a family with household employees like a nanny, private senior caregiver, housekeeper or other domestic workers, you may be eligible for several tax deductions related to their employment costs. Taking advantage of these nanny tax deductions for household employers can provide substantial tax savings.

Dependent Care Account

If your family has a Dependent Care Flexible Spending Account (FSA) through an employer, you can use pre-tax dollars to pay for up to $5,000 of qualified expenses for childcare or adult dependent care. Wages paid to your nanny, senior caregiver, or other household employee qualify as an eligible expense.

Child and Dependent Care Tax Credit

Taxpayers who pay for childcare for dependent children under age 13 can claim a non-refundable tax credit worth 20-35% of up to $3,000 of eligible expenses for one child, or up to $6,000 for two or more children. Nanny wages are included as a qualifying expense.

Household Employee Taxes as Business Deduction

If you are self-employed and required to have a nanny or senior caregiver in order to work, you may be able to deduct the employer taxes you pay for that employee as a business expense. This includes:

  • Your portion of Social Security/Medicare taxes (7.65% of cash wages)
  • Federal and state unemployment taxes

Deducting Wages as Medical Expense

In certain cases, if your child or dependent has a medical need requiring in-home care or assistance, a portion of the nanny or caregiver’s wages qualify as a deductible medical expense. Strict rules apply and require obtaining a document from your doctor.

Maximize Your Tax Savings from Nanny Tax Deductions for Household Employers

Claiming all available nanny tax deductions and credits can significantly reduce the costs of having household employees. However, proper documentation and payroll compliance is required.

HomeWork Solutions provides household employee payroll and tax services tailored to families. Let us ensure you receive every deduction you are entitled to while staying fully compliant with “nanny tax” rules. Get a free quote to learn more.