A Helpful Tax Tip for Hiring a College Caregiver

If you're considering employing a college caregiver, we want to let you in on a secret that can save you (and your caregiver) some money. 

Not many people are aware, but college tuition reimbursement (up to $5,250 per year) is considered a non-taxable form of compensation. That means neither you nor your caregiver would have any taxes on that portion of her compensation.

It can't be a replacement for all of their wages; you still need to pay your caregiver at least minimum wage. But, beyond minimum wage, their compensation can be strategically structured to capitalize on this tax strategy.

Heres an illustration of the math. Lets say you live in Massachusetts and the going rate for caregivers is $15 per hour. You hire someone for about 20 hours per week and about 36 weeks a year. Your total employer wages for the year would be $10,650. Your employer taxes would be about $1,100, making your total cost for the year $11,750.

Now, if you hire a college caregiver, you can leverage the non-taxability of college tuition reimbursements. Instead of paying $15 per hour in straight wages, youd pay $9 per hour (that's the minimum wage in Massachusetts) for a total of $5,400. You could then pay the caregivers tuition and books up to $5,250 per year. Doing so would make their total compensation $10,650 just like our other example. However, the employer taxes would be only about $560, bringing the grand total to $11,210. Thats a savings of $540 just by capitalizing on this tax strategy.

The great news is this strategy also benefits the caregiver, since their taxes would be calculated based on an income of $5,400 instead of $10,650. As a college student, at this wage level, they wouldn't have any income tax burden, only a small amount of Social Security and Medicare taxes which will, of course, benefit them later in life.

So, the bottom line is that hiring a college caregiver has some tax advantages that can help reduce the cost of child care while also helping your caregiver.

Tax incentives arent the only benefits. Some other advantages of hiring a college caregiver include:

  • Flexible Schedules: With their class schedules, college caregivers often can be available for after-school hours and other times when it can be difficult to find reliable care.
  • Role Models for Kids: College caregivers are often energetic, motivated individuals working their way through school and ready to make a difference. If you find the right caregiver, she can be a great influence on younger children.  
  • Homework Help: Depending on their major, a college caregiver could be a huge help academically, pitching in with homework or even offering light tutoring services.
  • Proximity: Good help can be hard to find, but if you live in a college town then you may be able to find college caregivers who live nearby and fit your familys schedule.

If you'd like to learn more about this tax strategy, feel free to contact our HomePay team, the nation's leading specialist in household employment payroll, tax and labor law. We're happy to provide a free consultation to help you understand how to capitalize on this and other tax breaks, such as the Child and Dependent Care Tax Credit, which can save you an additional $600-$1,200 per year. Just call 888-273-3356 Monday through Friday, 8 a.m. to 6 p.m. Central Time.