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user1984
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I an LLC sole-proprietor working from a home-office. Can I hire a Nanny as an employee in order to offer "on-site child care"?

Further, can the dedicated area used for child care during business hours be deducted as part of the home office?
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I an LLC sole-proprietor working from a home-office. Can I hire a Nanny as an employee in order to offer "on-site child care"?

Ok ... you can hire a nanny however they  are  NOT an employee of your company in any way UNLESS you are in the business of providing nanny services to others.  The nanny is a personal employee if they work in your home  and none of that home used for day care can be a deduction ... only the space usually and EXCLUSIVELY used for your Sch C business can be used for the Sch C OIH deduction form 8829. 

 

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8 Replies

I an LLC sole-proprietor working from a home-office. Can I hire a Nanny as an employee in order to offer "on-site child care"?

Ok ... you can hire a nanny however they  are  NOT an employee of your company in any way UNLESS you are in the business of providing nanny services to others.  The nanny is a personal employee if they work in your home  and none of that home used for day care can be a deduction ... only the space usually and EXCLUSIVELY used for your Sch C business can be used for the Sch C OIH deduction form 8829. 

 

Carl
Level 15

I an LLC sole-proprietor working from a home-office. Can I hire a Nanny as an employee in order to offer "on-site child care"?

"You" can hire a nanny if you want. But if your SCH C business is not "in the business" of providing day care, you can't claim it as a business expense or deduction on the SCH C at all. If the nanny is providing the care in your home, then they would probably be considered a household employee requiring you (not the business) to issue them a W-2 and do all the required withholding from their pay.

ocramolop
Returning Member

I an LLC sole-proprietor working from a home-office. Can I hire a Nanny as an employee in order to offer "on-site child care"?

What if the person providing child care is one of my children and that child also performs other business functions for the sole proprietorship, such as office work, marketing, etc. Can all her work be wrapped into her W-2, including the child care portion?

I an LLC sole-proprietor working from a home-office. Can I hire a Nanny as an employee in order to offer "on-site child care"?

No ... only the business portion can be paid thru the business account.  This must be considered a separate situation and you should get an EIN for the nanny income and file a separate W-2 form. 

I an LLC sole-proprietor working from a home-office. Can I hire a Nanny as an employee in order to offer "on-site child care"?


@ocramolop wrote:

What if the person providing child care is one of my children and that child also performs other business functions for the sole proprietorship, such as office work, marketing, etc. Can all her work be wrapped into her W-2, including the child care portion?


This is where we have to say "see a tax advisor."

 

A business can provide on-site child care for employees.  The care provider can be an employee of the business.  Even though the business might be manufacturing cars (for example), providing child care can be an ordinary and necessary business expense because it allows employees with children to get on with the actual business of making cars.  So that by itself, is not a reason to say that Jane Smith has to get two different pay checks if they spend half their time performing direct duties for the company and half their time performing child care so that other employees can work.  

 

However, there are special tax rules for work-provided child care, whether or not the value of the childcare must be included as part of the employee's wages.  And someone who is more than a 2% owner of the company can't use the ordinary rules, they have to use special rules to account for the value of that child care in their wages. I'm not convinced it would be wrong to pay the child for on-site childcare to allow you to run the business (because other businesses do it), but it's hinky to me because you are the owner and the employee is your child.  .

 

Put another way, if you had an employee John who was unrelated to you, and John told you he had to quit because of childcare issues, and you offered to hire an unrelated person Tom to provide childcare for John's children because John is such a valuable employee, I think that would be allowed, and Tom would be an ordinary employee of the business providing an ordinary and necessary service to the business, even though you would have some tax issues to work out to account for the value of the childcare on John's W-2.  However, because you are the owner, and the proposed provider is your child, that throws the whole arrangement into question. 

 

On top of that, if the care provider is your child under age 18 and you pay them personally, you don't have to withhold or collect household employer's tax (social security and medicare).  And you don't have to pay FUTA if they are under 21. But if they are an employee of the S-corp, then you must withhold social security and medicare tax on all their wages and the corp must pay the matching half of the tax plus FUTA.  So hiring the child under the corp is more expensive to you and the child, if the child is under 21). 

 

I would pay the child under the S-corp for S-corp related work and I would pay them as a household employee for the childcare.  For any other arrangement, I recommend professional advice. 

https://www.irs.gov/businesses/small-businesses-self-employed/family-help

https://www.irs.gov/businesses/small-businesses-self-employed/hiring-household-employees

I an LLC sole-proprietor working from a home-office. Can I hire a Nanny as an employee in order to offer "on-site child care"?

And if you claim the child providing the child care as a dependent on your return you can't take the Child Care Credit on your return.  

ocramolop
Returning Member

I an LLC sole-proprietor working from a home-office. Can I hire a Nanny as an employee in order to offer "on-site child care"?

Thank you. Sounds dicey still. I’m a sole proprietorship. I wouldn’t take child car tax credit as that would seem to emphasize that her role is as nanny/baby sitter and not as employee. I’m looking for ways to reduce taxable income legitimately by reasonably and legally paying my children as employees, as you referenced in your response. It seems logical that I can pay her as an employee to do the work, but I see how it gets complicated if the childcare is a benefit to me, the owner. Clear as mud.

I an LLC sole-proprietor working from a home-office. Can I hire a Nanny as an employee in order to offer "on-site child care"?


@ocramolop wrote:

Thank you. Sounds dicey still. I’m a sole proprietorship. I wouldn’t take child car tax credit as that would seem to emphasize that her role is as nanny/baby sitter and not as employee. I’m looking for ways to reduce taxable income legitimately by reasonably and legally paying my children as employees, as you referenced in your response. It seems logical that I can pay her as an employee to do the work, but I see how it gets complicated if the childcare is a benefit to me, the owner. Clear as mud.


One extra point, I somehow got the idea you were an s-corp.  If you are a sole prop, and you hire your child under age 18, you don't have to withhold social security and medicare from their wages or include it on their W-2.  See here,

https://www.irs.gov/businesses/small-businesses-self-employed/family-help

 

Your child does need to provide legitimate services to the business, something that you would pay someone else to do if they were not your child, at the same wage.  (If you are a dog walking service and would pay an unrelated employee $12/hour, for example, you can't pay your child $30/hour, but you also can't pay them $5/hour.)

 

The idea of wrapping child care into it is too much for me to have a decent opinion about except to ask a real expert.  

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