Watch This Before Filing Your Taxes! Nanny Tax Breaks (2021 and 2022) - YouTube

Hi everyone, Laura from  Nanny Parent Connection here.

Tax season is upon us, there are  a lot of tax breaks out there,  

and there are some for 2021 that are  different than there will be for 2022. 

Please join me as I sit down with Tom Breedlove,  the senior director of business development  

for nanny payroll company Homepay. And  trust me, you don't want to miss this,  

even I learned about several tax  breaks that I didn't know about before.

Laura: Hi everyone, I'm here  today with Tom Breedlove,  

the senior director of business  development for Homepay. Thank you  

so much for joining us today Tom. Tom: thanks for having me, Laura.

Laura: So today I have a few questions about nanny  taxes, and how to handle them for the current year  

that we're right now we're dealing with 2021,  but then also to ask about any changes for 2022.  

So, thank you again for joining us to  kind of walk us through all of this.

Tom: Sure!

Laura: So, let's start with clients who are  working right now on their 2021 tax returns,  

what are the 2021 tax returns that these families  should know about as they pertain to child care?

Tom: A lot of people have heard of the child tax  credit, but there's also a thing called the child  

care tax credit which is  really important to families,  

and the way that that works is that that tax break  allows families to itemize this last tax year 21,  

up to $8000 per child with a cap of $16 000 per  family. So, if you have more than two kids you  

have to stop at $16 000, but what that allows  you to do then is take any dependent care,  

it could be a daycare center, it could be fees  paid to your firm to find a nanny, it could be  

wages paid to the nanny taxes paid behalf of  those wages for the nanny, even day camps count,  

and families can then itemize up to $16000, and  then take a credit of up to 50% on those dollars,  

and that 50% is actually can fluctuate  a little depending on how much  

your adjusted gross income is. But, for a lot of families,  

it will be 50% or close to that. So, you can see that family could come you know  

could make as much as $8000 in tax savings just  by taking advantage of of these child care tax  

credit, and these raised expense limits. So, if  you're getting annoyed really close to tax time. 

But, if you have an accountant, we can actually  prepare or work with your accountant to get a  

schedule H prepared to get wages paid in from  last year, all documented properly so that the  

accountant can then follow the family's tax  returns. It may be that we're at a point now  

where we want to try to get an extension, but  that's very common so that your accountant can  

file an extension we can get the scheduled age  and the other documents prepared, and then when  

your accountant files it you'll be able to take  advantage of all those tax savings and maybe get  

up to $8000 back if you have two or more kids. So,  it's a good year for the child care tax credit.

Laura: Wonderful! So, I think I learned  a couple things here. I learned that by  

sending my child to a summer camp which is  just a day camp that covers the working hours  

that is actually something that can  be a tax credit those expenses. So,  

that's interesting, I don't think  I ever actually knew that before.

And then the other thing is that, if I'm a family  who has been just paying my nanny in cash maybe  

under the table, it's not too late for this year  to kind of retroactively bring everything up to  

speed legally with regards to taxes, and then also  to be able to take advantage of those tax breaks.

Tom: That's exactly right!

Laura: That's fantastic!

Tom: Yeah, and those camps that you  brought up, they can be any kind of camp.

Laura: It's not the only  night camps though, right!

Tom: Overnight camps are excluded,  premises it has to be so that the  

parents can work. But, any kind of day camp  during the summer would fall into that character.

Laura: Okay, wonderful, that's great  news! And then for a family paying a nanny  

in the 2022 tax year, how do the tax breaks  work for 2022, and are there any changes?

Tom: Yeah that's a great question, and honestly  we're in kind of in a fuzzy area right now,  

because the build back better act which  is currently kind of stalled in congress,  

would actually change the amounts that families  could save for 2022, and it's in the proposal  

may go to that amount, if it doesn't I  think it was $4000 is what's being proposed,  

$4000 per child. So, it could go to that level.

The worst-case scenario is it will revert back  to the level it used to be before 2021 which  

is $3000 per child, and a cap of $6000,  and then families can itemize, or use the  

tax credit percentage against those expenses. So, what we're finding & what I would probably  

tell your families is this year the probably the  most lucrative tax break will be an FSA, Dependent  

Care FSA If their employer offers it. And, a  lot of companies offer Independent Care FSA.  

They usually have what's called an open  enrollment in the fall in anticipation of 2022,  

they probably did it that last October, but what  a lot of people don't realize is that there are a  

lot of opportunities to get in mid-year because  there are what they call life-changing events,  

and if you have any kind of life-changing event  which is switching a job, you might switch your  

job you might switch care providers, or from a  daycare center to a nanny, for instance, that's  

considered a life-changing event. If you had a  baby course that would be a life-changing event.

So, there are a number of things that each  HR Department has the ability to use as  

an opportunity to enroll mid-year. So, you usually have a 30-day window  

around those events, so I would encourage  your families that if they just had a baby  

if they just switched jobs at any of those  life-changing events, or even if they're just  

not sure, go ahead and talk to your  hr department. See if you can get in  

mid-year because they do have like I said  a number of loopholes to enroll mid-year.

But then, you'll be able to set aside up to $5000  

per family, per year, and then you as a  taxpayer wouldn't have any taxes on that $5000.  

So, your families wouldn't have any income  taxes, any social security, any medicare,  

all those taxes that typically get taken out,  for that $5000 they wouldn't have any taken out. 

So, it typically saves families close  to a couple thousand dollars a year, and  

this year unless the buildback better act passes  and actually gets increased a little bit, I'm  

thinking that the FSA will probably be the best  bet for most families if they can enroll with you.

Laura: Right, okay that makes sense. My key  takeaway from that is, to be in touch and be  

good friends with your HR Department. You can  reach out to them, and they can kind of walk  

you through anything that should be on your  radar, based on what's happening in your life.

Tom: That's exactly right. And, if you you  know if your families have any questions about  

any of this on their personal situation, or  if they want to understand more about what  

if I become an employer, and I put my nanny on  the books, what are the cost, I know there are  

some taxes, what is all that going to cost me. We have a team dedicated to helping families  

budget, and we can help you understand what the  taxes will be as an employer, and then what the  

tax breaks will be as an employer, and often times  the tax breaks will offset a large percentage  

of the taxes. So, if families don't have to  come out of pocket too much to pay legally.

Laura: That's a really great point because that is  a concern about when families are considering any  

care budgeting, and how much those nanny taxes are  going to cost, and I do have some budgeting tools  

also I offer families, but it's important to know  that if you do things legally, those tax breaks  

are there for a reason they do offset those  nanny taxes, which are concerned for so many.

Tom: They do, and back to the 21 tax year. I think  

this year more than ever families many families  will come out ahead because of that $8000 that  

I mentioned earlier that a lot of families will  get from this year is actually probably far exceed  

by 4, 5, 6 thousand dollars probably  what the employer taxes would be. 

So, you know you could really  gain some net positive cash there.

Laura: And nobody will ever be  sad about that, that's for sure.

Tom: That's right!

Laura: Okay! And, does everybody  qualify for these tax breaks?

Tom: Yeah that's a great question. The way the laws is structured  

the dependent who is receiving care has to be  under the age of 13, or if they're over the age  

of 13, they could still qualify but they have  to be mentally or physically unable to care for  

themselves. So, there are some exceptions. But,  usually under 13 and then the other restriction  

is that families both spouses have to work, or  be full-time students. So, as long as they're  

the goal is to allow them to either be able to  participate in the economy, or be going to school,  

and that's why the care is needed, and so both  spouses need to show that they're working or going  

to school. But as long as those two things  are met, there are no income restrictions,  

no matter how much a family makes, they can  still take advantage of these tax breaks.

Laura: And then if people have questions about  how this works, can they reach out directly  

to Homepay to get in touch with people  who are really familiar with the laws?

Tom: Absolutely, we have experts at the ready  so they can call anytime, and it will we have a  

free expert available to to  help with all the budgeting,  

all the questions they might have about  legal pay, what it means for their nanny,  

what it means for them, the financial  aspects of it that we already talked about,  

we can walk through that and explain what  the state requires, what the IRS requires. 

Once they understand all the benefits their nanny  gets, and all the risks that they're mitigating  

for themselves. A lot of folks do decide to pay  legally, and if they do decide to pay legally,  

we can certainly explain what we do to make that  super easy for families because we have a service  

that takes care of everything so they don't have  to spend their weekends trying to do tax stuff.

Laura: And having done taxes both ways before  handing off to a payroll company versus doing  

payroll for our nanny ourselves, I can personally  attest to the fact that it is so much nicer to be  

able to handoff. When I say so much nicer to  hand off I mean my husband because I wasn't  

the one who handled that. I know he appreciates  the extra time, but yeah it's just it's really  

nice to know that you guys, this is what you  do all day long, you can really go into this  

and be able to trust that things are going to  be done correctly, you know people are going  

to get paid on time, that sort of thing. So, I always encourage families just do  

one less thing, and just hand  off the payroll, it's so nice.

One last question actually, it just made me  think about who can call and ask for help!  

Can nannies call and ask you for help too if  they have questions about taxes or legal pay?

Tom: Yeah we get quite a few nannies  who do call and have a few questions,  

and it's usually around like the w-4 when  you're trying to pick withholding how much taxes  

should I withhold, and how many allowances should  I choose, and that kind of thing. But, we also  

get a lot of questions about you know social  security, and how the earnings credits work, and  

medicare, and disability, and  unemployment, and obtaining loan  

things like the child tax credit for nannies,  because a lot of them have children and  

they're able to then take advantage of that. So, there's a number of tax-related things,  

work agreements, paid time off, paid sick  leave, those kinds of things a lot of times  

nannies have questions about that, just like  families do, so we're here for them as well.

Laura: Okay, wonderful! It's good to know that  anyone can reach out, and you guys will be able  

to help. Well, fantastic! Thank you so much for  joining us today. I really appreciate all of your  

professional help, and insight, just it's a lot  for families to navigate, and it's just nice to  

know that you guys are the professionals, you know  what's going on, everything will be done right  

and just to have someone to turn to with those  questions. So, thank you so much for joining us!

Tom: Thank you, we're here to help!

Laura: Alright, take care, Tom!

Tom: Thanks, Laura!

Alright, everyone, I hope you learned about  the tax breaks that are available for 2021,  

as well as some of the changes to the tax  laws in 2022 that are pending currently.

Please click on the link in the description below,  If you have questions about nanny taxes, questions  

about nanny payroll, or if you're interested  in setting up nanny payroll with Homepay.

If you liked this video and found it helpful,  

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of these videos come out. Thanks everyone, bye!