Live-In Caregiver Tax Deductions

[llcooljayce]

Mods: I have this posted in the Parenting section with no responses, so I am posting here.

I have an interesting question regarding taxes on a live-in caregiver.

Our nanny will have the following employment terms:

* $9.62 per hour for 45 hours of work per week
* We are paying her bi-monthly
* Room and Board that we will charge is $336/month or $168/pay period

Assuming 11 working days per 15 day period, the pay should be as follows:

$9.62 * 9 hours/day * 11 days = $952.38

So the question now is, should we deduct the Room and Board ($168) BEFORE or AFTER taxes?

Before Tax Deduction

$952.38 - $168.00 = $784.38
Taxes on $784.38 is $89.08 so total pay to nanny is $695.30

Out of our pocket = $695.30 (Nanny Pay) + $89.08 (Tax Remittance) = $784.38

After Tax Deduction

Taxes on $952.38 is $139.45 so total pay to nanny before R&B is $812.93
$812.92 - $168.00 for Room and Board is $644.93

Out of our pocket = $644.93 (Nanny Pay) + $139.45 (Tax Remittance) = $784.38

So the question is, should I take off R&B before or after tax?

As you can see, the total amount per pay period coming out of our pocket is the same in both instances but it is substantially better for the nanny if we take of Room and Board before we calculate taxes.

Is there any reason not to do it this way? Are there any implications tax wise when we file in April?

[YYC27]

Pretty sure you can't deduct r&b from her taxable income. It's her after-tax expense to pay. If you were providing free r&b, you would still have to calculate the taxable amount of the benefit you were providing.

[llcooljayce]

I guess if we were to offer R&B for 'free' and charge a taxable benefit, that would mean that the amount that we report to the government for her pay would then fall under the $9.62/hour minimum wage.

[ghostryder]

Is there any reason not to do it this way? Are there any implications tax wise when we file in April?

Yes. Your nanny owes taxes based on gross pay. If you artificially reduce the gross pay by deducting R&B and withhold taxes based on the lower "gross" you, as the employer could be penalized for failing to make the proper withholding and remittances.

BTW you will have to make remittances more often than just April. You will probably have to make remittances monthly. Your income tax and your responsibilities as an employer are two separate issues.


I guess if we were to offer R&B for 'free' and charge a taxable benefit, that would mean that the amount that we report to the government for her pay would then fall under the $9.62/hour minimum wage.

Maybe I am misunderstanding you comment but I think you are misunderstanding taxable benefits.

You have to pay your nanny at least minimum wage, if you give free R&B on top of that you have to include the value of the R&B as a taxable benefit and make withholdings accordingly. Whether you give the nanny the $168 a month in cash or in free R&B the tax withholding is the same.