Don't Miss Out on the Child Care Tax Benefits and the Nanny Tax
Here are some tip on new taxes that can come with a new baby
Have you checked out every possible child and child care tax benefit allowed under federal law? To make sure you're getting every possible child care tax benefit, educate yourself. From the dependent tax deduction to the child care tax credit to the nanny tax, here's a rundown of the major dependent and child care tax benefits.
First on the child care tax benefit menu is the dependent and child care tax credit, which reduces the amount of federal income tax you owe. If you paid a qualified caregiver or daycare center to watch a young child so you could work or look for work, you likely can claim the child care tax credit.
The child care tax credit is a percentage, based on your income, of the amount of child care expenses related to work. The percentage can be as low as 20 percent and as high as 35 percent, based on Internal Revenue Service table.
The amount of child care expenses that can be applied toward the credit is capped at $3,000 for one child and $6,000 for more than one child.
If you are a working parent, knowing about this tax benefit is must as we all know the cost for child care in the U.S. is rising. Every little bit helps, so come here to learn more.
The next benefit is the child tax credit, which can reduce your family's tax bill by $1,000 for each minor child who qualifies. But first, you must meet all the tests and income limits.
There are things to consider like how old your child is, what the exact relationship is to you the tax payer, that the child must have been completely financially dependent on you for the year, they must be a U.S. citizen, and you must answer to where they lived for the year.
Check out this article to learn the rules and for an example of how ths tax credit works.
Understand the Dependent Tax Deduction
One of the most well known child tax benefits is the dependent tax deduction. It's so popular that some expectant mothers whose due date fell at the beginning of the year have induced labor in late December in order to qualify!
This provision of the U.S. tax code can indeed reduce the amount of taxes you owe, if you qualify. You can claim the dependent tax deduction for a person who is a qualifying child or relative and has lived with you for more than half of the tax year, with some exceptions. Here's how the dependent tax deduction works.
It may not seem like a benefit, but paying the nanny tax is not only the law, it will help provide for your babysitter when it comes time to collect Medicare and Social Security. Just do it! It's not as hard as you think.
If you want to ease into it, start by figuring out if you owe nanny taxes to the U.S. government or not. The law says that if hired someone to manage any household help, such as a nanny, babysitter, or housekeeper, you must pay Social Security, Medicare, FUTA (Federal Unemployment Tax Act) and federal and state income tax if their annual pay crosses over a certain threshold, which as of 2015 was $2,000.
Here are 15 steps you can follow to pay your Nanny Tax.
What is the Nanny Tax, anyways? It's something that you need to pay if you fall under the requirements of the tax.
According to the IRS your Nanny is a household employee because you control what she works on (your children) and how she should take care of them (your daily instructions). Also you pay the Nanny, or an adult babysitter, more than a set amount (which the IRS usually changes) every year,
The IRS website states if you paid cash wages of $2,000 or more in 2016 you'll need to play an employment tax (or Nanny Tax). But if you paid cash wages of $1,000 or more in any calendar quarter of 2015 or 2016 you'll need to pay an unemployment tax. For more details, like how much of percent you'll need to pay, see the IRS website here.
This tax benefits your nanny tremendously, and if she's unaware of it here's an article for you to forward on to her.