If you’re a college or graduate student working as a nanny, did you know that a family can reimburse you for tuition and save both of you some money?
That’s right. A family can reimburse you for up to $5,250 in college tuition, fees, books and supplies, and have the entire contribution be considered non-taxable. That means that neither you nor your family would have any taxes on that portion of your compensation.
It can’t be a replacement for all of your wages; your cash wages must be at least minimum wage. But, beyond minimum wage, your family can structure your payroll to capitalize on this tax strategy.
Here’s an example of how the math works out. Let’s say you live in Massachusetts and the going rate for child care providers is $15 per hour. You work about 20 hours per week and about 36 weeks a year. Your total wages for the year would be $10,650. At this wage level, you would not be subject to income taxes but your Social Security & Medicare taxes would be about $815, making your total after-tax pay for the year $9,835.
Now, let’s assume your family leverages the non-taxability of college tuition reimbursements. Instead of being paid $15 per hour in straight wages, you’d be paid $9 per hour (that’s the minimum wage in Massachusetts) for a total of $5,400. The other $5,250 would go to reimburse you for tuition and books. In this case, your total compensation is $10,650 just like our other example. However, now your taxes are only about $415, bringing your total after-tax compensation to $10,235. That’s a savings of $400 per year just by capitalizing on this tax strategy.
The great news is this strategy also benefits the family you work for, since their employer taxes would be calculated based on compensation of $5,400 instead of $10,650. In this scenario, the family would save about $540 per year.
Learn more about Tuition Reimbursement for College Caregivers.
So, the bottom line is, as a college nanny, you are considered a tax advantaged employee. Most families are probably not aware of this tax strategy that could save both of you a lot of money.
Here are a few tips for talking to the family you work for about getting tuition assistance:
- Tell Them School is Important
Let the family know what courses or path of study you’re enrolled in, and how this plan supports your personal and professional goals. Be sure to point out how what you learn will help with the job you’re interviewing for.
- Let Them Know How You Plan to Use the Reimbursement
College isn’t cheap, so any financial help you can get will be a great benefit. Show the family you’re working for how they’ll help you achieve your goals by telling them how you’ll use your tuition assistance money on tuition for a degree, lab fees, books or supplies, for example.
- Emphasize the Tax Savings for Them
You already know what you’ll gain by advancing your education, but your strongest case is showing the employer whats in it for them tax savings. You’ll need to get them on board by outlining what they’ll gain by helping you with your college fees.
Feel free to share this information with the family you work for and invite them to call our HomePay team if they have any questions. As the nation’s leading specialist in household employment payroll, tax and labor law, our HomePay experts can handle all the employer paperwork for the family and make sure everything is handled correctly.
