Can You Deduct Au Pair Expenses on Taxes?

Employing an au pair offers significant support for families needing childcare, but understanding the tax implications is complex. Their tax treatment is not always straightforward and involves specific federal rules. This article clarifies how au pair expenses affect a household’s tax situation, detailing available tax benefits and household employer responsibilities.

Understanding Au Pair Tax Status and Eligibility for Credits

Families employing an au pair generally assume the role of a household employer for tax purposes. An au pair is considered an employee if the family controls what work is done and how it is performed. This employment relationship means the au pair’s wages are taxable income, and the host family has associated tax obligations. Most au pairs enter the U.S. on a J-1 visa and are considered non-resident aliens for tax purposes, usually filing Form 1040-NR.

Au pair expenses are generally not deductible as business expenses, but they may qualify for the Child and Dependent Care Credit (CDCC). This credit helps working families offset the costs of care for a qualifying individual. To be eligible, the care must be “work-related,” enabling the taxpayer, and their spouse if filing jointly, to work or actively look for work. The individual receiving care must be a qualifying person, which includes a child under age 13 or a spouse or dependent unable to care for themselves who lived with the taxpayer for over half the year.

Qualifying Expenses and Credit Calculation

Eligible expenses for the Child and Dependent Care Credit include cash wages paid to the au pair. The value of non-cash compensation, such as room and board provided to the au pair, can be counted if it is considered taxable wages. Certain program fees paid to an au pair agency may also qualify if directly linked to obtaining childcare services.

Specific limits apply to the total amount of expenses used to calculate the credit. For tax year 2024, the maximum care expenses allowed is $3,000 for one qualifying individual. For two or more qualifying individuals, the maximum rises to $6,000. The actual credit amount is a percentage of these qualifying expenses, ranging from 20% to 35%. This percentage is determined by the taxpayer’s Adjusted Gross Income (AGI), with higher AGIs resulting in a lower credit percentage.

Household Employer Tax Responsibilities

Families employing an au pair assume specific household employer tax responsibilities, distinct from potential tax credits. These obligations represent taxes the employer must pay. A primary responsibility involves Social Security and Medicare taxes, collectively known as FICA taxes. For 2024, if cash wages paid to any single household employee, including an au pair, reach $2,700 or more, the employer must pay FICA taxes on all wages. This threshold is set to increase to $2,800 for 2025.

FICA taxes are divided between the employer and employee, with each paying 6.2% for Social Security and 1.45% for Medicare, totaling 7.65% for each party. The employer is responsible for remitting both their share and the employee’s share by withholding the employee’s portion from their wages. Host families might also incur Federal Unemployment Tax Act (FUTA) obligations if they pay total cash wages of $1,000 or more in any calendar quarter to household employees. However, since most au pairs are non-residents, host families are exempt from FUTA taxes for them.

If the FICA wage threshold is met or federal income tax is withheld, the employer must provide the au pair with a Form W-2. To issue a Form W-2, the host family needs an Employer Identification Number (EIN) from the IRS. While federal income tax withholding is not mandatory for household employers, it can be done if the au pair requests it and the family agrees to withhold.

Reporting Au Pair Wages and Claiming Credits

Reporting au pair wages and claiming the Child and Dependent Care Credit involves specific IRS forms. For household employment taxes, including Social Security, Medicare, and FUTA taxes, families must file Schedule H (Form 1040). This form is attached to the family’s main income tax return, Form 1040. An Employer Identification Number (EIN) is required to file Schedule H.

To claim the Child and Dependent Care Credit, taxpayers must complete and submit Form 2441. This form requires detailed information about the care provider, including their name, address, and Social Security Number (SSN) or Employer Identification Number (EIN). It also involves calculating the total qualifying expenses and the applicable credit amount based on the taxpayer’s income. Accurate record-keeping of all payments made to the au pair and other related expenses is important for correctly completing these tax forms.