The new American Rescue Plan signed into law is making care more affordable for families across the nation. This is because the savings from a Dependent Care Account (FSA) and the Child Care Tax Credit are both dramatically increasing for the 2021 tax year.
Paying on the books is a requirement for using these tax breaks and HomePay can help you get set up to take full advantage of them. Here’s what your savings may look like depending on how many children you have:
| Tax Credits | Previous Savings | Savings for 2021 | Difference |
|---|---|---|---|
| Dependent Care Account (FSA) | $1,750 – $2,300 | $4,200 – $4,800 | 110% – 140% |
| Child Care Tax Credit – 1 child | $600 | $800 – $4,000 | 30% – 570% |
| Child Care Tax Credit – 2+ kids | $1,200 | $1,600 – $8,000 | 30% – 570% |
| Both tax credits – if you have 2+ kids | $1,950 – $2,500 | $4,800 – $6,100 | 140% – 150% |
Paying legally can now save you money versus paying under the table
The cost of paying legally is roughly an extra 10% on top of what you’re paying your caregiver. Tax breaks normally offset a lot of this cost, but now they should exceed it for many families. That means paying legally is cheaper for you than paying under the table. Here’s a few hiring situations and what your savings could be:
| Scenario | Wages | Total Cost | Savings | % Savings |
|---|---|---|---|---|
| 1 child, nanny share | $16,000 | $14,400 | $1,600 | 10% |
| 2 children, nanny share | $16,000 | $12,475 | $3,525 | 22% |
| 1 child, full-time nanny | $25,000 | $24,300 | $700 | 3% |
| 2 children, full-time nanny | $25,000 | $22,375 | $2,625 | 11% |
| 1 child, full-time nanny | $40,000 | $40,590 | $(590) | -1% |
| 2 children, full-time nanny | $40,000 | $39,490 | $510 | 1% |
| 1 child, part-time nanny` | $10,000 | $7,800 | $2,200 | 22% |
| 2 children, part-time nanny | $10,000 | $7,800 | $2,200 | 22% |
Our budgeting calculator is available if you want to see your specific savings. In addition to cutting down your care costs, your caregiver also receives valuable benefits, such as access to unemployment benefits and credit towards Social Security and Medicare when they retire. These benefits are directly tied to being paid on the books.
Using Homepay makes taking advantage of tax breaks truly simple
Our comprehensive tax and payroll service handles everything for you and it’s easy to get started. We’ll save you hours of tedious work and give you peace of mind knowing everything we do for you is timely and accurate. Get started today and see how we can maximize your 2021 tax savings.