A household employee like a nanny, gardener, or newborn care specialist can make life so much easier in today’s busy world. They can make a huge impact on the quality of our lives and the lives of our children by allowing us to provide the close hands on care for them while being able to still succeed at our day jobs. It truly does take a village to raise a child and that is even more true these days where dual working parent households are the norm rather than the exception. Let’s take a look at some of the benefits to ensuring that you are paying your household employees properly and what tax advantages that could mean for your household’s bottom line.
The Tax Man Cometh
It may be tempting, but it is definitely the wrong course of action to contemplate paying your prospective home care professional “under the table” a.k.a. without reporting the transaction to the IRS. Failing to do so can lead to fines, tax audits, and other legal troubles that you just don’t want to get yourself involved in. Do the right thing and make sure that you fill out the proper paperwork and pay the correct taxes on your household employees. The biggest benefit is that you can rest assured that they will appreciate it because if their wages are paid and taxed correctly, they can earn Social Security Credits and tax benefits of their own. So, it’s just good all around to avoid any unnecessary hassle.
For help with payroll insights and associated taxes we recommend using a payroll company, they ensure that everything is handled correctly. At The Early Weeks, can connect you to amazing payroll companies that charge nominal fees to take care of payroll for them. Basically hassle free for your family when you use The Early Weeks.
Household Employees Are Just That: Employees
It may seem confusing at first, but when you pay for someone to help with in-home child care like a sleep training expert for your infant, this person is, for all intents and purposes, an employee of yours and not an independent contractor. Technically, anyone you hire to help with things around your home, so long as they do not have their own business LLC, is considered a household employee. This may include newborn care professionals like, nannies, night nannies, newborn care specialists, postpartum doulas and mothers helpers. It may also include other trades people like gardners, handymen, chefs, house cleaners, estate managers, etc.
They must be given a W-2 form and not a 1099 and the tax structure is going to be different as well. Make sure that you are researched in that when engaging the services of a household employee.
More Benefits To Having Household Employees
As an employer, you can definitely take advantage of some benefits and financial instruments deployed by the government to help you better afford your household employees.
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- Use of a Dependant Care Account To Pay Wages
- Depending on how many children you have, you can set aside up to $10,500 in a flexible spending account that will be tax free, similar to a HSA.
- You can read more about it here: https://www.shrm.org/resourcesandtools/tools-and-samples/hr-qa/pages/dependentcareassistanceplan.aspx
- Use of a Dependant Care Account To Pay Wages
- The Child and Dependent Care Credit
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- The wages you pay an in-home caregiver, nanny, or newborn specialist for care each year may be tax deductible, up to $8,000 if you have one child and $16,000 if you have two. There are a few stipulations and restrictions, but it is a great opportunity to offset a good portion of your childcare expenses each year in these situations.
- You can read more here: https://www.irs.gov/newsroom/child-and-dependent-care-credit-faqs
For all these reasons and so much more, it is a great idea to hire a household employee to help your family with child care, especially if you and your partner are working full time and need specialized expertise and guidance from a newborn care professional like The Early Weeks. Contact us today to set up a free 15 minute phone consultation.
Have questions about your baby or parenting journey? Please reach out. We are here to help!
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