1. How much did you pay your nanny? Was it $2,000 or more? According to IRS Publication 926, if you hire a nanny to work in your home and pay him or her $2,000 or more throughout the calendar year, you have household employment tax responsibilities.
If this describes your summer situation, the IRS says you must withhold Social Security and Medicare (FICA) taxes from your nanny and pay an equal amount of FICA taxes yourself. But don't worry, when you do things by the books, the IRS will reward you. (Note: If you paid $1,000 or more to your nanny from April 1 through June 30, or July 1 through Sept. 30, you will owe federal and state unemployment insurance taxes, as well.)
2. Do you know about the childcare tax breaks? Not many people enjoy dealing with taxes, but for childcare-related expenses, the IRS has a couple of great tax breaks if you followed all the tax rules for your summer nanny.
The one that will save you the most money is a Dependent Care Account — a type of Flexible Spending Account offered through your employer. You would have needed to enroll in this benefit during your company's Open Enrollment period, but it allows you to set aside up to $5,000 to pay for qualifying expenses. Hiring a nanny happens to be one of those types of expenses.