Nanny Tax Deduction: A Complete Guide
A household employee can offset certain expenses against their salary through their tax returns. These tax breaks result in childcare workers like nannies keeping more of their hard-earned cash.
Looking after a child or children can leave little time to focus on the tax deductions that might be available to you.
We’ve compiled a list of some of the most common tax deductions you can claim. That’s going to save you spending valuable time doing the research. Read on to find out about your entitlements, whether you’re a nanny, child care assistant, or kindergarten assistant.
Table of Contents
- What is a Nanny Tax?
- Eligibility to Claim Nanny Expenses
- Nanny Expenses You Can Claim
- Nanny Expenses You Cannot Claim
- How Much Can You Claim in Nanny Expenses?
- How To Claim Nanny Expenses
- Key Takeaways
- Frequently Asked Questions
What is Nanny Tax?
Nanny tax is an amount the Australian Tax Office (ATO) deducts from what you earn. In most cases nannies are employees but they can in very specific circumstances be independent contractors.
Independent contractors would have to be in control of the hours they work and typically supply their own equipment to get the job done.
Nannies who are employees get the income tax they owe deducted through PAYG withholding. Sometimes, parents organise the nanny tax deduction as their employers and sometimes an employment agency may do it.
Either or both might use a nanny payroll service to sort out all the tax deduction processes.
Eligibility to Claim Nanny Expenses
To complete your tax return as a nanny, you’ll need an income statement from your employer. You might have heard this called a “payment summary” or “group certificate” in the past.
It acts as a summary that lists your wages, allowances, and bonuses for a particular financial year. Your employer should lodge all these details annually with the ATO.
Tax Breaks on Money You Spend
Once that’s happened, you’ll be able to download the information to help you work out your tax deductions and tax breaks.
You can claim a tax refund on any of your own money that you spend in the financial year on services or products related to earning your salary. The important points are that your employer didn’t already reimburse you and that you have receipts to prove what you spent.
Nanny Expenses You Can Claim
There are many categories of child expenses that you may be able to claim. Here are the key ones:
You may have to collect supplies or travel for excursions, training courses, and sporting events. If so, the cost of using your own car is usually tax deductible. If you work for more than one family and have to move from one home to another, that would also count. You can include school pick-ups and drop-offs too.
If your employer requires you to wear a uniform that would not be available to the general public you can claim for that as well as laundry costs.
Your work may include creative or outdoor activities. If so, you could claim for items such as aprons, gloves and protective footwear. You can include sun protection accessories such as hats, sunscreen, and sunglasses.
Training and Education for Nannies
Training courses are key for personal development. They allow you to stay abreast of industry requirements and first aid updates. Any course must relate directly to the job you’re currently doing. If so, any fees and related expenses are normally tax deductible. These include:
- Any textbooks, stationery, and equipment needed for the training of a child
- Certificates and diplomas
- Travel expenses, including meals and accommodation
Child Care Equipment You Supply
A nanny may have to supply items for a child or children in their care. Sometimes working parents do not pay for them or offer any reimbursement. Out-of-pocket work-related expenses deductible in your tax return might include:
- Teaching aids, stationery, toiletries, and food
- Musical instruments for a child, and art or craft materials
- Toys and prizes for the children
Personal Phone and Internet Expenses
A nanny or household worker may need to use their personal phones to contact other staff, parents, or a child care centre. Their job might also include writing emails or responding to them using an internet provider they have paid for using their own money.
In those cases, work-related usage on a personal phone or device would be deductible.
Other Tax Deductions
To complete the picture of child-related deductibles, here are some other expenses to claim against taxes:
- Association or union membership fees
- Payments for work-related books or library costs
- Organising and attending excursions, day trips, or events
- Donations to registered charities
- The previous year’s tax agent fees
Nanny Expenses You Cannot Claim
You cannot claim travel between work and home. Your employer may want you to wear certain types of clothing such as black trousers or white shirts when looking after children. If these kinds of items are readily available in the shops then you cannot make a claim.
Charitable donations would not count if you got anything back in return such as a raffle ticket. You cannot claim any upfront fees, joining fees or search fees paid to an employment agency.
You cannot include the cost of any meals eaten during the course of a normal working day. Grooming costs are non-deductible too even if your job requires you to look smart and well-presented.
Unsubstantiated claims can happen when a nanny pays for an expense from their wages but cannot produce a receipt. In most cases, the ATO would reject the claim without the relevant receipt or invoice.
How Much Can You Claim in Nanny Expenses?
Expenses must be reasonable and relate to your job looking after a child or children. You must have paid any expenses using your own money. For travel claims when using your own car, the maximum refund you can claim is up to 5,000 km per year.
How to Claim Nanny Expenses
Record-keeping is key to making any nanny tax deduction. You must keep track of your receipts. Although you don’t need to submit physical receipts, you would have to keep a digital copy. This is because the ATO might need to check what they are for at some point.
You’ll need to make sure that it’s possible to read the information on the receipt. This would include details of any supplier, the date of the expense, and the nature of the goods or child services.
Compiling a List of Receipts for Nanny Tax Deduction
It’s not necessary to keep receipts for items or services that cost under $10. This is as long as they don’t cumulatively add up to more than $200. However, when you’re starting out looking after a child or children, it’s a smart move to collate everything for your own records.
Because of the number of nanny tax deductions that apply to childcare workers, using FreshBooks will help. It will allow you to manage your expenses and receipts so that you meet your accounting needs.
You can start recording your expenses with FreshBooks expense tracking software right now. Find out here about the simple steps needed to start the ball rolling.
Claiming a child care tax deduction can have a positive impact on the overall wages paid to nannies. You must have paid for any tax-deductible expenses out of your own pocket for them to apply.
You can claim a nanny tax deduction on any services or products that relate to your job and the way you earn your salary. Your employer must not have reimbursed you for these and you must be able to produce receipts to prove what you spent.
There is a broad range of nanny tax-deductible expenses and tax breaks related to looking after a child or children that you can claim. The main ones relate to travel, clothing, training, relevant equipment, and paying phone bills.
FAQs on Nanny Tax
Is a Nanny a Business Expense?
If you are a parent employing a nanny, the ATO would not consider them as a business expense. Their salary would therefore not be tax deductible or comparable to a dependent care tax credit or other tax breaks.
Can You Write off Child Care if You Pay Cash?
No matter how you pay your nanny, as their employer you would still be legally obliged to pay tax and Super if they are your employee.
If you attempted to avoid paying taxes by paying your nanny in cash, then the ATO would consider this illegal. You would also be depriving your nanny of employment rights they have an entitlement to.
What Benefits Should I Offer My Nanny?
When you employ a nanny, they would come under the Miscellaneous Award as set out by the Fair Work Ombudsman (FWO). You must therefore pay your nanny or child carer at least the minimum required under the Award.
Employers also have to ensure they have other benefits covered such as maximum working hours. They must offer compensation for working public holidays as well as sick and holiday payments. And, they must pay Super and Workers’ Comp contributions too.