Tom Breedlove, partner at Breedlove & Associates wrote me today in response to the nanny tax story. He said there is another tax break available to most families that is about twice as lucrative as the Child or Dependent Care Tax Credit. Anyone with a Flexible Spending Account (also called a Dependent Care Account) can pay for up to $5,000 of childcare expenses with pre-tax dollars. Depending on the tax bracket of the family, this saves $2,000 to $2,300 per year. If you have two children, you still have $1,000 remaining, which you can itemize under the Child or Dependent Care Tax Credit and save another $200 on your tax bill. Bottom line: about 80% of US families have access to Flexible Spending Account...those families can pay a nanny about $25,000 - $27,000 per year and break even on employer tax costs (employer tax costs exceed the tax breaks once you pay your nanny more than that threshold).

Tom's company specializes in nanny payroll and tax services. It manages the payroll taxes, quarterly tax filings and year-end paperwork. Go to Breedlove Associates.

Posted by Barbara Correa at 11:55 AM | Permalink | Comments (0)