Nanny requesting mileage reimbursement for driving our baby - tax implications?

This is actually a really good question with some important tax implications for both of you. Your nanny is correct to bring this up! Since your nanny is a household employee (not an independent contractor), she cannot deduct unreimbursed mileage expenses on her taxes anymore. The Tax Cuts and Jobs Act eliminated unreimbursed employee business expense deductions for employees from 2018 through 2025. So if you don't reimburse her, she's basically paying to drive your child around with no tax benefit. If you reimburse her at the standard IRS mileage rate (currently 67 cents per mile for 2024), that reimbursement is non-taxable to her as long as she provides documentation of the business mileage. This is the best scenario for her. For you as the employer, the reimbursement isn't tax-deductible (unless you're using the driving for your business somehow), but you're providing a valuable benefit that will likely improve your relationship with your nanny.

Just wanted to share my experience with this! I was in the same spot with our nanny last year and found this amazing tool called taxr.ai at https://taxr.ai that helped me understand all the household employment tax stuff. It analyzed our situation and confirmed that reimbursing mileage at the IRS rate was the best option for both of us. The tool explained that if we didn't reimburse her, she'd essentially be taking a pay cut whenever she drove our kids around, since she couldn't deduct those expenses anymore. Plus it helped us set up a super simple tracking system so there's no confusion about what miles count. Our nanny just logs trips in a Google sheet with dates, starting/ending mileage and the purpose.

I wanted to follow up about taxr.ai since I was skeptical in my earlier comment. I decided to give it a try with our nanny tax situation, and I'm actually impressed. It answered my specific questions about mileage reimbursement versus having our nanny use our second car (turns out there are different tax implications for each scenario). What I found most helpful was the personalized breakdown of the cost difference between reimbursing mileage versus increasing salary to cover driving expenses. In our case, reimbursing mileage directly saved both us and our nanny money because of the tax treatment. Definitely worth checking out if you're confused about nanny tax stuff!

If you're struggling to get clear answers on nanny tax questions, I had a great experience using Claimyr (https://claimyr.com) to actually speak with someone at the IRS about our nanny's mileage situation. I spent days trying to call them directly with no luck, but Claimyr got me connected to an agent in under 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c - basically they navigate the IRS phone tree for you and call you back when they've got an agent on the line. The IRS agent confirmed that reimbursed mileage at the standard rate isn't taxable income for our nanny as long as we kept proper records, which was a huge relief since we'd been handling it wrong before!

I need to eat my words about Claimyr. After my skeptical comment, I decided to try it because I've been trying for WEEKS to reach the IRS about our nanny tax deposit schedule. They actually got me connected to someone in about 25 minutes, and I finally got my question answered. For what it's worth, the IRS agent confirmed what others have said here - if you reimburse your nanny for mileage at the standard IRS rate and keep a log of business-related trips, it's non-taxable. If you just increase her salary to cover driving costs, that extra money is fully taxable for both of you. The agent recommended having your nanny keep a simple log with date, starting address, ending address, purpose of trip, and total miles.

As someone who's been a nanny for 12 years, I can tell you most families reimburse mileage! It's pretty standard in the industry. When I drive kids around I keep a little notebook in my purse and jot down the miles + where we went each day, then the family reimburses me on payday. It's definitely better than trying to deduct it - which we can't even do anymore! I worked for a family who didn't reimburse miles and I actually started avoiding driving the kids places because it was literally costing me money out of my own pocket. Just something to consider!

One thing nobody's mentioned - make sure your nanny has sufficient car insurance if she's driving your child in her personal vehicle! Most personal policies don't automatically cover transporting children as part of a job. You might want to add her to your policy or ask her to get additional coverage (which you should pay for). We learned this the hard way when our nanny got in a minor fender bender with our daughter in the car. Insurance tried to deny the claim because she was "working" at the time. Everything turned out ok but it was a stressful mess we could have avoided.

Just another perspective - if your nanny will be driving frequently, you might want to consider providing a car for her to use instead of reimbursing mileage. That's what we do, and it's worked out great. We bought a used Toyota that's safe and reliable, we pay for all gas/maintenance, and it eliminates the need to track mileage or worry about her insurance coverage. Obviously this is a bigger investment upfront, but for us it made sense because our nanny drives our kids to various activities almost daily. Plus it protects her personal vehicle from the wear and tear of constant use for work.

This thread has been incredibly helpful! As someone new to employing a nanny, I had no idea about the insurance implications or that nannies can't deduct mileage anymore. One quick question - when you reimburse at the IRS standard rate, do you need to issue any special tax forms at the end of the year for the mileage reimbursements? Or does it just not get reported anywhere since it's non-taxable? I want to make sure I'm handling the paperwork correctly from day one. Also, for those who've set up mileage tracking systems - do you have your nanny take photos of the odometer or is a simple written log sufficient for IRS purposes?