Increased Tax Breaks For Parents - Get Your Benefits Today
The rise in the Dependent Care FSA (DCFSA) contribution amount limit, along with the IRS extension of the open enrollment rule exception - allowing anytime updates to DCFSA contributions in 2021 - have maintained dependent care tax breaks in view since the spring when the changes took effect.
The estimated scenario below includes the typical 2021 tax savings that a family or parent hiring a nanny to start this week could see:
Childcare Provider Gross Pay: $19,000
Family (Employer) Taxes: +$1,740
IRS Tax Breaks: -$7,370
Family Net Cost: $13,370
By paying legally, the family could save $5,630 and mitigate the risks associated with paying under-the-table - all while ensuring that their nanny will have access to financial safety nets like unemployment insurance and paid family medical leave should the need arise.
If your company has not yet rolled out the new DCFSA contribution limit ($10.5k), you are not alone. Unfortunately, administrative hurdles have caused some companies to delay rollout. An easy workaround available to families and parents with access to a DCFSA through both of their jobs is to contribute up to the old limit ($5k) to both accounts, for a total of $10k.
Families without access to a DCFSA, can fall back on the increased Child and Dependent Care Tax Credit (CDCTC). Qualifying dependent care expenses not applied to the DCFSA can be applied toward the CDCTC, up to a maximum of $8k for families with one dependent and $16k for families with multiple dependents. The tax credit is up to 50% of the qualifying expenses, but the credit decreases at higher adjusted gross income levels - with most household employers receiving a credit of $1,600 (one dependent) or $3,200 (multiple dependents).
If you are not sure how this affects you, or how to reduce your taxes with regards to childcare, we’d recommend you use a qualified CPA who is local in your town or city. The cost of a CPA is usually well worth the advice they can present.
Families and parents may use their DCFSA card or DCAP Card (all major debit and credit cards are accepted) in the NannyPod app to pay for childcare.
NannyPod provides long term nanny matches and short term occasional date-night babysitters and infant care on demand, at an affordable price. Our service is convenient, safe and secure for families and our staff. Parents can request childcare instantly by using the NannyPod App or find a long term nanny through the NannyPod Boutique service. Get started with NannyPod today and find babysitters or nannies for your childcare needs!
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