By Tom Breedlove of Breedlove & Associates
In this recession that just won’t end, everyone’s looking to save money wherever possible. A major savings opportunity is employment tax strategies, which are frequently overlooked because most general tax professionals are not experts in the nuances of household employment.
Being savvy in this area can save you and your family thousands of dollars. Whether you’re in the middle of an employment relationship or about to start a new, keep these money-saving tips in mind:
Tip #1: Non-Taxable Compensation
There are several forms of compensation that are considered “non-taxable,” meaning neither you nor your family would have to pay any taxes on this portion of your compensation. The tax-advantaged expense categories are:
- Health insurance
- Tuition & books at an accredited college or university
- Public transportation to and from your job
- Parking at your jobsite
You and your employer may be able to structure (or re-structure) your payroll to take advantage of one or more of these expenses as “non-taxable compensation” – saving both of you a substantial amount of money.
Note: These tax-advantaged compensation strategies need to be handled appropriately; please have your employer call us or another household employment tax professional for assistance.
Tip #2: Tax Breaks for Your Family
Your employer is also eligible to receive tax breaks for childcare-related expenses through a Flexible Spending Account and/or the Childcare Tax Credit. These tax breaks can save your family up to $2,500 per year. We have a free Employer Budget Calculator or they are welcome to call us.
If the family you work for contributes at least half of your health insurance premium, they are entitled to the Health Insurance Tax Credit for Small Employers. This tax credit is worth up to 35% of the employer’s contribution.
Tip #3: Tax Breaks for You
You may qualify for the Earned Income Tax Credit (EITC), a federal program designed to assist hard-working Americans with an Adjusted Gross Income of less than:
- $43,998 ($49,078 married filing jointly) with 3 or more qualifying children;
- $40,964 ($46,044 married filing jointly) with 2 qualifying children;
- $36,052 ($41,132 married filing jointly) with 1 qualifying child; or
- $13,660 ($18,740 married filing jointly) with no qualifying children.
Those who qualify can get a “refundable tax credit”* of up to:
- $5,751 with 3 or more qualifying children;
- $5,112 with 2 qualifying children;
- $3,094 with 1 qualifying child; and
- $464 with no qualifying children.
* Since the EITC is a “refundable tax credit,” it is possible to receive a federal tax refund that is greater than the amount of taxes you paid in during the year.
If you think you might qualify for the EITC, you should apply using the EITC Assistant on the IRS website. (The form for the 2011 tax year is not available yet, but will be around the end of the year).
If we can help you or your employer take advantage of any of these money-saving tips, please call 888-273-3356 or visit www.myBreedlove.com. We’re here to help.