What's our best tax advantage for child care?

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Pay her with a fricking check and tell her to pay taxes like the rest of us do

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We have somebody that comes to our house to watch our daughter. We pay her $300 per week cash

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IT'S EASIER than you think to get stuck owing the "nanny tax." Did you pay a babysitter working in your home more than $1,700 in 2010? The figure is also $1,700 in 2011. Well, unless that babysitter is your parent, spouse, under-age-21 child or someone under age 18 whose principal occupation is not household employment (a student, for example), then you owe the tax.

The nanny tax is actually shorthand for three federal employment taxes — Social Security and Medicare taxes (together referred to as FICA tax) and the federal unemployment, or FUTA, tax. You will probably also owe state unemployment tax and perhaps state disability tax as well. Contact the appropriate state agency (listed in IRS Publication 926) and find out what's required.

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Don't get caught short
And because the employment taxes are filed as part of your routine individual income tax return, you need to stay on top of the amount you will owe so you won't be surprised when you figure your final tax bill in April.
If your return shows a tax of more than $1,000 due, you could owe the IRS penalties and interest for underpayment of taxes throughout the year. Because of that potential cost, household employers should consider filing estimated tax payments to cover any tax shortfall.

Or, if you have a job, you can file a revised W-4 and ask your boss to adjust your income tax withholding to make sure you pay enough taxes that way.

Remember, too, that in addition to complying with tax laws, you'll need to follow federal and state labor laws that apply to household help.

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We pay her $300 per week cash as of right now. What can we deduct for taxes?

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