Families who hire on a short-term (i.e. summer nannies), part-time, or shared basis have a unique tax advantage. Since employer taxes are tied to wages, these families typically have a much smaller tax obligation but still get to take full advantage of the tax breaks. Here's an example:
The Smiths hire a summer nanny and pay her $500 per week for 13-weeks ($6,500 total). The Smiths have access to a flexible spending account at work, which allows them to pay for up to $5,000 of childcare-related expenses using pre-tax dollars. This saves them $2,300. Meanwhile, the Smiths owe about $600 in employer taxes. The net savings for the Smiths is $1,700!
As you can see, legal pay pays off – especially in short-term, part-time, or share-care employment situations.
Although some families wrongly assume that temporary employment of a nanny absolves them of their legal obligations as an employer, in the eyes of the law, it doesn’t matter if the worker is temporary or permanent, full-time or part-time, salary or hourly – in all cases, the worker is considered the employee of the family for whom he or she works and all employer laws and responsibilities apply.
Tom Breedlove is a Partner at Breedlove & Associates, the nation's leading specialist in payroll, tax, and HR services for household employers.
Thank you so much for this as my friend is a college student who works as a regualr part time nanny who will be working full time for same family this summer. She wants to be paid on the books now she can show parents this will benefit them. I showed her post!
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