I have heard that I can get a personal tax break for child care? Does this apply when I hire a nanny?
There are two popular strategies that families use to minimize their personal income taxes. Many families can utilize a flexible spending plan (cafeteria plan) offered by their employer for child and dependent care expenses. Your human resources department can provide you with plan details. Another strategy is the Child Care Credit available to many parents. This credit can directly reduce the parent's income taxes by between $600-$1,440 a year.
To be eligible for any childcare tax breaks, the family has to report the wages paid to the nanny and remit the necessary employment taxes. Many families find that the tax break offsets the cost of the payroll taxes for the nanny, thus easing the financial burden of tax compliance.