FREQUENT QUESTIONS
How can I save money by paying nanny taxes?
There are two strategies to minimize your nanny taxes. You can use either a Flexible Spending Account or the Dependent Care Tax Credit to reduce your nanny tax costs. These credits are only available if you pay your nanny taxes.
- The Flexible Spending Account. With this option, you may completely offset your nanny tax costs! For example, paying your nanny $500 a week will lead to nanny taxes of about $1,900 annually. By putting $5,000 into your Flexible Spending Account, you reduce your annual taxes by about $2,000. The result? It may not cost any additional money to pay nanny taxes. Check the availability of this benefit with your company or benefits staff.
OR
- The Dependent Care Tax Credit. This is a credit towards taxes you owe that is based on the number of children you have under the age of 13. The credit can reduce your federal taxes by $600 for one child or $1200 for two or more children. For example, if you owe $1,300 in income taxes, this benefit will reduce your taxes owed to $100 (if you have two children) or $700 (if you have one child).
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