Can I deduct household employee taxes (Federal and CA) for our part-time nanny?

Thanks for the response! Quick question - does the Child and Dependent Care Tax Credit have income limits? My spouse and I both work full-time and make decent incomes, so I'm worried we might phase out. Also, is this credit available on both Federal and CA returns?

Yes, the Child and Dependent Care Tax Credit does have income limitations, but they're structured as a reducing percentage rather than a hard cutoff. For federal taxes, the credit percentage starts at 35% for those with AGI of $15,000 or less and gradually decreases to 20% for those with AGI over $43,000. So even higher-income families can still get some benefit, just at the lower 20% rate. California does offer its own version of the Child and Dependent Care Credit that generally follows the federal rules but with some differences. California's credit is only available to taxpayers with AGI of $100,000 or less, so there is a hard cutoff at that income level for the state credit.

That sounds interesting but I'm skeptical. How exactly does the tool work? Does it just give generic advice or does it actually look at your specific documents?

Does it handle state-specific rules? I'm in Massachusetts and our nanny tax situation is more complicated than federal. Wonder if this would help with that or just the federal stuff?

The tool actually analyzes your specific tax documents, not just generic advice. You upload your W-2, 1099s, Schedule H and other forms, and it uses AI to identify potential deductions specific to your situation. It highlighted several things in my documents that my previous tax software missed entirely. It absolutely handles state-specific rules. I'm in California like the original poster, but it covers all states. For Massachusetts, it would factor in your state's specific nanny tax requirements. It was particularly helpful with identifying the intersection between federal and state rules - places where taking certain deductions on your federal return affected state-level options.

Wait, this actually works? I thought IRS phone lines were basically impossible to get through. How much does it cost? Seems too good to be true honestly.

This sounds like a scam. Why would anyone need a service to call the IRS? I've called them directly before and while the wait was long, I eventually got through. Paying for a callback seems unnecessary and potentially sketchy. What info do you have to give them?

Yes, it actually works! I was surprised too. The IRS phone lines are notoriously difficult - I had tried for days before using this service. The system holds your place in line so you don't have to sit with your phone for hours. When an agent is available, they call you back. I understand the skepticism - I felt the same way initially. You don't provide any sensitive tax information to the service itself. They just secure your place in the queue and connect you directly with the IRS. The actual tax discussion happens directly between you and the IRS agent. It's basically just solving the wait time problem, not intermediating the actual tax conversation.

How does this work exactly? My husband has a side business (LLC) but it's just him, no employees. Would this still be an option for us? Our nanny costs are killing us tax-wise.

This gets a bit complicated, but here's how it works: If your husband's business is just him with no employees, it's trickier but still potentially viable. The key requirement is that if you offer this benefit, it needs to be available to all employees on a non-discriminatory basis. In a single-member LLC situation, you'd need to ensure the plan documents are properly drafted to show it would be available to future employees if they were hired. Some tax professionals are more comfortable with this approach than others. The benefit allows you to deduct a portion of qualifying dependent care expenses as a business expense rather than a personal deduction, which can be more valuable.

For the CDCTC, you generally report the wages you pay directly to the nanny, not including the employer taxes. The qualifying expenses are reported on Form 2441. You'll need your nanny's SSN or tax ID number, and you'll list the care provider's information (your nanny's name, address, and tax ID) in Part I of the form. Make sure you're also filing Schedule H with your tax return to report household employment taxes, and don't forget about state-level requirements like filing DE 3BHW in California. The nanny needs to receive a W-2 by January 31 showing their wages.

Thanks for explaining that! So I only include what I directly paid her, not the employer taxes. That makes sense. I've got her SSN and have been keeping good records of payments. I'm feeling a little better about figuring out this Form 2441 now.