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It’s no secret that gas prices have skyrocketed over the past several months. Household employers are speculating if they should help their employees by reimbursing them for their commute. Here’s what to consider when making that decision.
It’s no secret that gas prices – along with many other everyday items – have skyrocketed over the past several months.
This has left household employers speculating if they should reimburse their nanny for their commute. And nannies wonder if they should broach the topic with their nanny family.
Here’s what to consider when deciding on whether to reimburse your nanny for their commute.
Compensation will be taxable
If you give your nanny a raise, bonus, or provide a flat weekly “gas stipend” to help cover the cost of gas, this extra compensation is considered taxable income. You and your employee each would pay 7.65 percent in FICA taxes (Social Security and Medicare) on the extra pay and your nanny may see an increase in their federal (and state, if applicable) income taxes.
The IRS also considers anything an employer gives to an employee to be a form of taxable compensation (with a few exceptions) and explicitly states that gifts to an employee are not excluded from the employee’s gross income. That means a gas card or gift card to a gas station would also be considered taxable income by the IRS.
Increasing your nanny’s hourly rate could also be perceived as a permanent raise. When gas prices eventually return to normal, your nanny likely will expect her pay rate to remain the same.
Mileage reimbursement does not include commuting
The IRS allows you to reimburse your nanny for the cost of gas and maintenance, without tax implications, when they use their personal car for business purposes.
For your caregiver, this may be taking your kids to parks, playgrounds, museums, playdates, and other places to get out and about. Your children may also have music lessons, sports practices, or school pick-ups and drop-offs that your nanny must handle as well. Maybe they also do some grocery shopping and other errands on your behalf.
If they use their own car while on the job, you can reimburse them 58.5 cents per mile (2022 rate).
This rate is intended to include all expenses incurred when an employee uses their own car while on the job including gas, insurance, maintenance, and depreciation eliminating any guesswork on your part.
Commuting to and from your home does not count toward their mileage reimbursement.
Qualified transportation expenses
With soaring gas prices, your nanny may be considering other options for their commute like the subway, bus, or other public transportation.
In 2022, you can set aside $280 in pre-tax dollars each month for your employee’s transportation expenses. This will reduce their gross income and lower both their and your tax obligations.
Transportation expenses include public mass transit (subway, train, busses, ferries, etc.) passes, tokens, farecards, and vouchers as well as vanpooling. Tolls and gas are not qualified expenses.
Qualified bicycle commuting reimbursements are no longer eligible as a tax-free benefit. However, you can provide the bicycle benefit as a taxable benefit.
Retaining your employee
The nanny job market is as competitive as it has ever been. In-home childcare is in extremely high demand with some nannies asking for – and receiving – $2-4 above their normal hourly rates.
With that in mind, could you risk losing your nanny for a job closer to their home if they find their commute to be busting their budget? Would a raise be in order – even with the increased tax implications – to keep your nanny?
Managing an increased cost of living could be a big stress in your nanny’s life. Talk to them about any concerns they may have about gas prices and inflation in general and determine a path forward.
GTM can help
Managing nanny taxes and payroll on your own? If you are fed up with the time and effort it takes to do this the right way, then let GTM Payroll Services manage it all for you. We can take care of payday with direct deposit and withhold and remit all federal and state taxes all while giving you secure, online access to make changes to your payroll at your convenience. Sound good? Give us a call at (800) 929-9213 and get a complimentary, no-obligation consultation with a household employment expert. Or schedule a time with us that works best for you.
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