Tax issues around expense reimbursement

[Anonymous]

We would like to give our nanny a set reimbursement for incidentals, food items, etc... Rather than having her submit receipts, we'd like to just write her a check once a month for a fixed amount (say $100 or 150 or whatever) so that she is covered for any small purchases she'd make or costs she'd incur.

We also want to make certain we are following best practices for tax purposes.

Can you all offer some advice on whether we're taking a risk in a flat rate "allowance" approach like this, or whether we have to require receipts documenting the expenses? (Please note, I'm NOT talking about car/mileage reimbursement.)

Thanks very much.

[Anonymous]

If you are not able to verify she actually spent the money on expenses (i.e., with receipts r legal estimates), this is just an additional stipend or bonus. You have to tax it like regular salary.

You can estimate mileage up to a certain amount each year, and possibly food expenses -- check the IRS website for the rules on this.

Before someone jumps in and says they get something tax free at their job, you are not a federal agency and can't just decide to make a perk tax free even if the gov't does it.

[CPPatGTM]

The post above is absolutely correct. You would need to verify through receipts that the amounts you provided her matched what was purchased or it would be included in her taxable income.

[Anonymous]

Our nanny just bought a house and was asked to justify a bunch of recent reimbursements. While I thought this was sort of beyond approprirate, the bottom line is that she had to show the origin of recent deposits, and I was asked to write a letter stating the origin of the prior reimbursement.

[Anonymous]

I give my nanny $50/month for gas and "incidentals" (she has a car she can use, but prefers to use her own when she has only one kid -- her choice, so I don't feel obligated to also reimburse mileage; I would prefer she use our car/carseats in fact, but I have chosen not to make an issue of it). I added this as a perk when we cut her hours, because she still had the same amount of commuting.

Because it's not for anything in particular, I include it in taxable wages.

[Anonymous]

Sign it in your contract and tell nanny to put her initials on the corner of the receit.

[Anonymous]

Anonymous wrote:I give my nanny $50/month for gas and "incidentals" (she has a car she can use, but prefers to use her own when she has only one kid -- her choice, so I don't feel obligated to also reimburse mileage; I would prefer she use our car/carseats in fact, but I have chosen not to make an issue of it). I added this as a perk when we cut her hours, because she still had the same amount of commuting.

Because it's not for anything in particular, I include it in taxable wages.

If she's driving your child on activities or doing errands then your $50 isn't a "perk"

[Anonymous]

Anonymous wrote:

Anonymous wrote:I give my nanny $50/month for gas and "incidentals" (she has a car she can use, but prefers to use her own when she has only one kid -- her choice, so I don't feel obligated to also reimburse mileage; I would prefer she use our car/carseats in fact, but I have chosen not to make an issue of it). I added this as a perk when we cut her hours, because she still had the same amount of commuting.

Because it's not for anything in particular, I include it in taxable wages.

If she's driving your child on activities or doing errands then your $50 isn't a "perk"

It sounds like the poster you are quoting provides a vehicle for nanny to drive and then an additional $50/mth as a perk. The fact that nanny chooses to use her own car instead of her employer's car does not make the $50 any less a "bonus". Of course if nanny is using the $$ to buy stuff for or do activities with her charge, then I would agree it should be treated as no taxable reimbursement rather than a perk.

[Anonymous]

The rules are very specific about what constitutes income for household employees. There are some things that you can give them tax-free (such as transit passes of a certain amount) and others that are considered income. Just do your homework first - the IRS site has all the info.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I give my nanny $50/month for gas and "incidentals" (she has a car she can use, but prefers to use her own when she has only one kid -- her choice, so I don't feel obligated to also reimburse mileage; I would prefer she use our car/carseats in fact, but I have chosen not to make an issue of it). I added this as a perk when we cut her hours, because she still had the same amount of commuting.

Because it's not for anything in particular, I include it in taxable wages.

If she's driving your child on activities or doing errands then your $50 isn't a "perk"

It sounds like the poster you are quoting provides a vehicle for nanny to drive and then an additional $50/mth as a perk. The fact that nanny chooses to use her own car instead of her employer's car does not make the $50 any less a "bonus". Of course if nanny is using the $$ to buy stuff for or do activities with her charge, then I would agree it should be treated as no taxable reimbursement rather than a perk.

Yes, we have a minivan that is always available for her to use, but she prefers her own car. She has no out-of-pocket expenses for the kids. Activities are all paid in advance, and I pack lunches. The $50/month is more than she should ever spend, even if she occasionally treated the three year old to something while they were out of her own accord. I gave her the $50 for a variety of reasons, but mainly so if she spends a dollar here or there on coffee during the day, or DS puts stickers all over her car that she has to take time to remove, she's already got the extra. This works out to more than a week's pay per year.

[webbkathy]

OP you have specific obligations to collect and retain documentation for the expenses you are reimbursing. If you don't do that, this must be considered taxable income to the employee.

See the blog post linked below for more details:
http://www.info.4nannytaxes.com/blog-0/bid/90519/Household-Employees-Guidance-on-Reimbursement-of-Expenses