Complying with nanny tax laws in Pennsylvania provides three significant benefits to families and their employees:
1) Audit & Lawsuit Prevention. Families who pay legally don’t have to worry about legal disputes from disgruntled former employees or IRS audits or charges of conspiring to commit tax evasion — a serious charge that carries heavy fines and potential jail time and loss of professional license. Think of it as insurance against tax and legal problems.
2) Tax Breaks. There is a common misperception that compliance is expensive. The truth is that most families — regardless of their income level — qualify for tax breaks that offset a large portion of the employer tax costs. There are two tax breaks available to families:
a) Dependent Care Flexible Spending Account (FSA). Families may pay for up to $5,000 of dependent care expenses using pre-tax dollars. Depending on the family’s marginal tax rate, using pre-tax dollars can save up to $2,300 each year;
b) Child or Dependent Care Tax Credit (IRS Form 2441). Families may itemize childcare expenses of up to $3,000 per child per year (maximum of $6,000). For most families, this tax break will yield an annual savings of $600 for one child and $1,200 for two or more children.
3) Professional Benefits. When a family pays legally, their employee receives important short-term and long-term benefits, such as Social Security, Medicare, unemployment, workers’ compensation, healthcare subsidies and the ability to obtain loans and credit. These benefits and protections have a dramatic impact on the perceived professionalism of the position and, therefore, the quality and duration of the employment relationship.