2023 IRS Update: Get back up to $1,200 in nanny or caregiver expenses through the Child Care Tax Credit

If you hired a nanny or caregiver so you can work, you may be able to claim between $3,000 and up to $6,000 in expenses with the Child and Dependent Care Tax Credit. This applies to care only, not to be confused with the Child Tax Credit. If you employ a caregiver, such as a nanny, regular babysitter or special needs caregiver, you might qualify for a refund of a percentage of the claim. You have to pay on the books to qualify for this tax credit.

Here’s how it works:

If you have one dependent, you can claim up to $3,000 in caregiving expenses. If you have two or more dependents you can claim up to $6,000. 

You then apply a percentage of 20% - 35% to the expense claim amount depending on your income. Most families claim 20% of the expense claims allowed.

As an example, if you have two children and you hired a nanny during 2023 and pay $30,000 in nanny wages, you can claim up to $6,000 of that expense. You can claim at least 20%, which is $1,200, offsetting your employer tax almost by half (your employer taxes are typically about 10% on top of the wages you pay).

The General Rules are the Same as in 2022:

1-The caregiver or nanny must have been hired so you, or you and your spouse, can work, look for work or go to school.

2-Under this type of account, a “dependent “ is a child under 13 years of age (until the day of their 13th birthday) and adult dependents who can't take care of themselves. Please keep in mind that they must live with you and be claimed as dependents on your tax return.

3- Your nanny, caregiver or babysitter must have a social security or taxpayer identification number and you must pay them legally with a W-2 at the end of the year.

4- If you have an FSA (dependent care Flexible Spending Account) through work, you cannot double-dip. You’ll need to subtract the FSA from total eligible expenses.

Nest Payroll makes it easy to pay your nanny or caregiver on the books. At any time, get a report showing your month by month total employer costs that make it easy to apply for this tax credit, or use the final pay stub at the end of the year that shows the total gross wages you paid. Text us any time if you have a questions at (650) 460-1750, or email us at support@nestpayroll.com.

For a deeper dive:

How to Save Even More With an Employer Sponsored FSA

IRS: Rules for the Child and Dependent Care Credit

IRS: Household Employer's Tax Guide

The information provided on this page is general in nature. This is not to be taken as tax, legal, benefits, financial, or HR advice. Since rules and regulations change over time and can vary by location, consult an attorney or financial advisor for your specific situation.