Au Pair upfront fees

[mcelwest]

Hi, if Au Pair agency fees are paid up front in 2019, are these eligible to be apportioned over the tax years? For example, if my au pair was from 1 July 19 thru 30 June 20 i.e. 6 mths in each of 2019 & 2020, could I apportion the agency fee 50/50 across tax years?

Thanks

[KathrynG3]

It depends on how it was reported in 2019. Typically, tax returns are filed on a cash basis. If the fee was charged in 2019, it should have been deducted in 2019. But, it is sometimes reported using the accrual basis and that would allow for you to apportion the fee. From one year to the next, the method must remain the same, or you would need to include Form 3115, Change of Accounting Method, as well.

Schedule H is used to report the costs of the Au Pair on your tax return. In your search box, type household employee taxes, sch h and then select the Jump to link. Answer Yes to Did You Have a Nanny or Household Employee? and follow the instructions.

[Opus 17]

For what tax purposes are you asking? The child and dependent care credit?

I am not convinced with the expert that you would report au pair expenses on schedule H as a household employee, if you were paying upfront fees to an agency instead.  Did you pay an upfront fee plus a weekly salary directly to the au pair, or did you only pay the agency in advance for the entire 12 months?

[mcelwest]

Agency up front. Au Pair stipend. But the cash v accrual made sense to me. But always happy to learn of alternatives to max out the deduction.

[mcelwest]

thanks. That was useful.

[Opus 17 · Accepted solution]

If you hired the au pair through an agency and paid the agency, then the au pair is not your employee and you do not pay household employee taxes or report the payment in any way on your tax return.

If you are trying to claim the child and dependent care credit on form 2441 using pre-paid au pair cost as your child care expense, then you must allocate the expense to when the care actually occurred. This is different from the normal rules of accrual and cash basis accounting, see IRS publication 503.  In other words, you should have reported half the expense as a child care expenses on your 2019 tax return and half the expense on your 2020 tax return.  However, you must have a valid Social Security number or tax identification number for the caregiver in order to claim the credit, and the caregiver would have to apply for an ITIN before you could claim the credit.

I can’t think of any other reason why you would be thinking of reporting this payment on your tax return, if it is not for the dependent care credit, please reply with more details.

[mcelwest]

"child and dependent care credit on form 2441 using pre-paid au pair cost as your child care expense, then you must allocate the expense to when the care actually occurred. @

this is what I was looking confirmation for.

Thanks. Off to re-read 503...

[speedway121]

Is it absolutely necessary to report the Au Pair as a household employee if they are hired thru an agency?

I havent done one yet but wondering how this will affect my taxes going forward?

[JohnW152]

No -- as Opus17 notes above, you shouldn't report your Au Pair as a household employee if hired and paid through an agency. 

See his full post above for more information.

[Opus 17]

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@speedway121 wrote:

Is it absolutely necessary to report the Au Pair as a household employee if they are hired thru an agency?

I havent done one yet but wondering how this will affect my taxes going forward?

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It depends on if the au pair works for you directly (and the agency is just a matchmaker) or if they work for the agency.  If they work for you directly, you need to pay household employee's tax on your tax return and you need to issue a W-2 to the au pair by January 31 of the tax year.

https://www.irs.gov/taxtopics/tc756

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

https://www.irs.gov/forms-pubs/about-publication-926