How tax breaks make hiring a summer nanny an affordable option for families

Tax breaks make hiring a summer nanny an affordable option


As the school year ends, you're likely facing the decision of what to do with your kids for the summer break. With after-school care no longer an option and day care and summer camp spots in high-demand, many opt for a nanny to provide high-quality one-on-one care in their home. And due to the way tax and payroll laws work out, hiring a nanny can be a very cost-effective choice.


You see, families that hire help on a short-term basis have a unique tax advantage: Your employer taxes are tied to the wages paid to the summer nanny, so your tax obligation is relatively low since the nanny only works for about three months. Yet you're still able to take full advantage of the child care tax breaks, which almost always results in a complete offset of tax costs.


A budgeting example

Say a family hires a summer nanny for $500 per week for 12 weeks to watch their two kids. The wages they pay the nanny come out to $6,000, but at the end of the summer, their total employer cost looks like this:

Gross Wages Paid to the Nanny


Social Security Taxes

+ $372

Medicare Taxes

+ $87

Unemployment Insurance Taxes

+ $156

Total Employment Taxes


Total Cost to the Family (before tax breaks)



By paying their nanny on the books, the family qualifies for tax breaks because each parent works and both of their children are under 13. The family is enrolled in a Dependent Care Account (a type of Flexible Spending Account, or FSA) through their employer, which allows them to pay for $5,000 of child care expenses tax-free.

Cost Before Tax Breaks  $6,615
Savings from FSA- $2,000 (based on the family's tax bracket)
Total Cost of Summer Nanny  $4,615


As you can see, the family is now saving $1,385 by paying their summer nanny on the books!


It's important to note that the IRS considers the current COVID-19 landscape to be a life-changing event - as well a change in child care needs. That means you can enroll in a Dependent Care Account mid-year if you hire a summer nanny.

What if the family doesn't have access to an FSA?

You can still use the child care tax credit (IRS Form 2441) to save 20% on up to $6,000 of your child care costs.

Cost Before Tax Breaks  $6,615
Savings from Child Care Tax Credit- $1,200
Total Cost of Summer Nanny  $5,415


In this scenario, you still come out ahead by $585. If you paid your summer nanny under the table, you would not be eligible for either of these tax breaks.


If you're trying to budget for summer care, crunch the numbers yourself and see how affordable it can be for you and how beneficial it could be for your kids.


Next Steps:


First things first—have you hired a caregiver?

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Have you already made any payments to your caregiver?


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What type of caregiver are you planning to hire?

When do you expect to hire someone?

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