Nannies: Making Work Pay Tax Credit

The press is abuzz with information on the "Making Work Pay" tax credit of $400 for single tax payers and $800 for couples. New tax tables have been published that reduce your income tax withholding, effective April 1, 2009.

Not all nannies, however, will qualify for this credit. That's right, it doesn't apply to everyone! Married nannies with combined family income over $150K or single nannies with income over $75K (not many of you, but you are out there!) will find that the credit either phases out or disappears all together. If you find yourself in this circumstance, it might be wiser for you to keep your tax withholding rates at the original 2009 withholding rates, rather than risk adding a tax obligation to your return next April.

HomeWork Solutions' Nanny Tax Calculator has both sets of tax rates available online for calculations. The tax rates for nannies who are eligible for the Making Work Pay tax credit is the 2009 Apr. - Dec. selection and the original rates for nannies who may not be eligible for the credit is the 2009 Jan. - Mar. selection under "Year."

The tax credit in the "Making Work Pay" provision is refundable; if your employee does not want the change in his/her withholding now but is eventually eligible, s/he will receive a greater refund when the 2009 tax return is filed.