We pay our nanny $50/month in her paycheck to cover misc. out of pocket expenses (e.g, odd item from grocery store, overdue library books on her card, ice cream shop with kids, gas for driving kids to school, etc.). The $50 is clearly identified on her paystub as a reimbursement for her out of pocket expenses. We don't ask for receipts, nor do we ask her to return the unspent portion (if any). Do we need to gross-up box 1 (taxable wages) of her W2? The total was $600 for the year. Our approach seems simpler than asking her to keep a mileage log, give us receipts, or segregate her purchases (for us) and pay with an employer provided debit/credit card. However, we want to get the tax reporting correct too! Thanks!
