How can I save money by paying nanny taxes?

There are tax breaks available for families employing a nanny which may reduce their nanny tax costs. You may be able to use a Flexible Spending Account offered by your employer or the Child & Dependent Care tax credit. These tax breaks are only available to you if you pay your nanny legally.

The Flexible Spending Account (FSA). You may be able to withhold pre-tax money from your paycheck in order to reimburse yourself for dependent care costs. With this option, you may reduce or completely offset your nanny tax costs! Check with your employer to see if they offer this “cafeteria plan” benefit.


The Child & Dependent Care tax credit. This is a credit that can reduce your federal income taxes when you file your federal tax return. In order to use this credit, you must meet certain requirements. See IRS Publication 503 for more information.

Because there are restrictions on each of these options according to federal law, you must be sure to investigate your eligibility.

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