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.
