Are weekly payments for au pairs deductible as a business expense?

You're mixing up two different tax concepts here. The child and dependent care credit is a personal tax credit designed to help families with childcare costs while parents work. Business expenses on Schedule C must be directly related to producing business income. The weekly payments to your au pair would generally not be deductible as a business expense unless the au pair is directly supporting your business activities rather than providing childcare. Paying someone to watch your kids while you work doesn't make it a business expense - it's a personal expense that's potentially eligible for the child and dependent care credit. For the dependent care credit, you can claim up to $3,000 in expenses for one qualifying dependent or up to $6,000 for two or more qualifying dependents. You'd need to provide both the agency's EIN and your au pair's SSN or ITIN on Form 2441.

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One thing no one has mentioned is that you should be careful about how much of your au pair expenses you allocate to different purposes. The IRS is very particular about this. For the dependent care credit, you'll need to complete Form 2441 and provide care provider information including name, address, and tax ID number (SSN or EIN). You can only claim expenses for the purpose of allowing you and your spouse to work or look for work. If you're claiming any portion as a business expense (which seems questionable based on what you've described), you'd need solid documentation showing how the expense is ordinary and necessary for your business.

We have an au pair too and what our accountant told us is completely different! He said we could deduct a portion of our au pair expenses as business expenses because without childcare we couldn't earn income. Has anyone else heard this?

I'd be really careful about deducting au pair payments as business expenses. The IRS has strict rules about what qualifies as a legitimate business deduction, and childcare generally doesn't meet those criteria even if it enables you to work. The key test is whether the expense is "ordinary and necessary" for your specific business operations. Paying someone to watch your kids while you work from home doesn't directly produce business income - it's a personal expense that happens to enable you to work. However, you're in a good position with the dependent care credit! With your combined freelance income, you should be able to claim up to $6,000 in qualifying expenses (assuming you have two or more kids) for a credit of $1,200-$2,100 depending on your AGI. Make sure you get the au pair's SSN/ITIN along with the agency's EIN for Form 2441. The math probably works out better with the credit anyway since it's a dollar-for-dollar reduction in taxes owed, versus a deduction that just reduces your taxable income.

This is a great question and I can see why you'd be confused! The key thing to understand is that the IRS treats childcare costs and business expenses very differently, even when the childcare enables you to work. Your weekly payments to the au pair are personal expenses that qualify for the dependent care credit, not business deductions. The test for business expenses is whether they're "ordinary and necessary" for your specific business operations. Paying someone to watch your kids so you can work doesn't meet this standard - it's a personal expense that happens to enable your work. Here's what you should focus on for maximum benefit: - Use the dependent care credit for both the agency fees and weekly payments - You can claim up to $6,000 in expenses if you have two or more qualifying children - The credit ranges from 20-35% of your expenses based on your AGI - Make sure you get the au pair's SSN/ITIN and have the agency's EIN for Form 2441 Given your income levels, the dependent care credit will likely provide better tax savings than trying to deduct these as business expenses (which could trigger audit issues). The credit directly reduces your tax liability dollar-for-dollar, while deductions only reduce taxable income. Keep detailed records of all payments and make sure your au pair files their 1040NR as you mentioned - that shows proper tax compliance on their end too.