Most families are pleasantly surprised at the cost.
Austin, TX (PRWEB) August 07, 2012
Many families are under the misperception that employer taxes (also known as the "nanny tax") will add significant costs and make hiring a nanny unaffordable. "That is not the case for a large majority of families hiring a caregiver," explains Stephanie Breedlove, founder of Breedlove & Associates.
"There are two tax breaks available to families who hire a nanny and they are not restricted by income so all families are eligible. The most lucrative tax break is the Flexible Spending Account, a benefit which is offered through many companies. Either of the spouses can enroll and pay for up to $5,000 of childcare expenses using pre-tax dollars. Depending on the family's marginal tax rate, it will save $2,000 to $2,300 per year."
Enrollment timing varies by employer, but it is usually offered in the fall for the subsequent calendar year. "Open enrollment for 2013 is approaching," Breedlove said. "If you know you're going to have childcare expenses of $5,000 or more, we highly recommend enrolling."
If you just had a baby or changed jobs, you may be able to enroll for the rest of 2012. "There's a 30-day window for enrollment if you have a life-changing event, such as the birth of a child or switch jobs," explains Breedlove.
If you don't have access to a Flexible Spending Account or can't enroll until 2013, you can capitalize on the Child Care Tax Credit, which allows you to itemize up to $3,000 per child per year -- up to a maximum of $6,000 per year. According to Breedlove, once you apply the 20% tax credit percentage, families with one child will save $600 per year and families with 2 or more children will save $1,200 per year.
Finally, Breedlove shared a little-known fact about these childcare tax breaks. "Families with access to an FSA and who have 2 or more children are able to utilize the FSA as well as a portion of the Child Care Tax Credit," she explains. "Families in that situation will save up to $2,500 per year."
These tax breaks typically offset the vast majority of the employer tax costs and some families even come out ahead. "Most families are pleasantly surprised at the cost," summarized Breedlove.
Breedlove & Associates offers to walk families through the tax breaks with a free phone consultation. They also provide a free Nanny Tax Calculator to help with budgeting.