Wednesday, November 01, 2006
Dependant Care Account - Flex Spending Account
November is typically open season for benefits selection for the following year. If you are considering establishing a Flex Spending Account, now is the time to do it.
A Flex Spending Account allows you to set aside up to $5000 of your income sheltered from Federal and most state taxes to pay for qualified child care expenses. This includes nannies when their income is reported for tax purposes.
This can be very advantageous for nanny employers, significantly reducing the 'expense' of paying the nanny legally.
Let's take a look at it. Assume that the family has an adjusted gross income of $150,000. The $5000 that the family designates to the Flex Spending Account would have been taxed Federally at the 28% tax rate. Assume that the state rate is 7 - 10%. The FICA tax rate is 7.65%. So the total taxes avoided are about 45% of $5000 or $2250.
A typical household employer pays 10% in employment taxes above the employee deductions. In this scenario, the tax savings from the Flex Spending Account will pay the taxes on the first $22,500 paid to the nanny ($432 per week).
You can only sign up for a Flex Spending Account during open season OR if you have a qualifying event during the year (birth/adoption/new dependant).
For more information about the Nanny Taxes, visit the HomeWork Solutions' website.
A Flex Spending Account allows you to set aside up to $5000 of your income sheltered from Federal and most state taxes to pay for qualified child care expenses. This includes nannies when their income is reported for tax purposes.
This can be very advantageous for nanny employers, significantly reducing the 'expense' of paying the nanny legally.
Let's take a look at it. Assume that the family has an adjusted gross income of $150,000. The $5000 that the family designates to the Flex Spending Account would have been taxed Federally at the 28% tax rate. Assume that the state rate is 7 - 10%. The FICA tax rate is 7.65%. So the total taxes avoided are about 45% of $5000 or $2250.
A typical household employer pays 10% in employment taxes above the employee deductions. In this scenario, the tax savings from the Flex Spending Account will pay the taxes on the first $22,500 paid to the nanny ($432 per week).
You can only sign up for a Flex Spending Account during open season OR if you have a qualifying event during the year (birth/adoption/new dependant).
For more information about the Nanny Taxes, visit the HomeWork Solutions' website.
