Au Pairs, Host Families and Taxes Part I

goAUPAIR frequently receives questions from Host Families regarding taxes, especially around this time of year.  Although goAUPAIR cannot provide official tax advice to Host Families and Au Pairs, we have collected the following information regarding Au Pair taxes from the IRS which Host Families can present to their tax experts.

In this two-part series of blog posts we’ll provide answers to the most frequently asked questions regarding taxes. Below you will find tax information specific to Host Families. After we post the tax information for Host Families, we will post specific tax information for Au Pairs. If you don’t find the answer to your questions feel free to contact us.

How can Host Families account for Au Pair costs when they file taxes?
Host Families may have the option of using their Au Pair expenses from the year for a child care tax credit or for their child care flexible spending account.  Au Pair expenses include program fees and the Au Pair’s stipend.  Families can obtain invoices from their Au Pair agency and should maintain receipts for the stipend and education paid to the Au Pair to present to their tax professional for consideration. goAUPAIR is happy to provide you with the necessary invoices and tax ID upon request.

Does my Au Pair have to file taxes?
Yes, Au Pairs have to file their own taxes. Most Au Pairs and Host Families are not aware that Au Pairs have to file their own taxes.

“An Au Pair will almost always be a nonresident alien, and will be required to file Form 1040NR or Form 1040NR-EZ to report his Au Pair wages. As a nonresident alien he is ineligible for the Earned Income Tax Credit, the Hope Credit and the Lifetime Learning Credit. An Au Pair is not really a "student" in the United States, and therefore is not eligible to exclude his Au Pair wages from gross income under the student article of any U.S. income tax treaty. An Au Pair who is a nonresident alien is not required to file a U.S. federal individual income tax return if his only U.S. source income is wages in an amount less than the personal exemption amount (Refer to Publication 501)
(IRS Web Site http://www.irs.gov/businesses/small/international/article/0,,id=96420,00.html)

“Au Pair wages are includible in the gross income of the recipients, and Au Pairs are required to file U.S. individual income tax returns. At the current wage rate it is likely the Au Pair will have an income tax liability on his U.S. individual income tax return because nonresident aliens (with certain exceptions) are not able to claim the Standard Deduction. For this reason it is recommended the Au Pair take one of the following two steps:

1. File and pay U.S. estimated income tax payments on Form 1040ES-NR (PDF) during the year; or
2. If both the Au Pair and the Host Family agree, file Form W-4 with his Host Family, indicating on line 6 of such form that the Au Pair voluntarily wishes a withholding amount of U.S. federal income tax deducted from his weekly Au Pair wages. The Host Family will report and pay over this withheld federal income tax on Schedule H of Form 1040. The Host Family will also issue Form W-2 Wage and Tax Statement to the Au Pair to report his Au Pair wages and income tax withholding. The Host Family will need to apply for an Employer Identification Number (EIN) if it decides to withhold tax and file Form W-2.” (IRS Web site http://www.irs.gov/businesses/small/international/article/0,,id=96420,00.html)

Will your Au Pair receive a 1099 form?
No, 1099 forms are for independent contractors who do work as sole proprietors. Au Pairs are not employees or independent contractors of goAUPAIR, because they “work” for their Host Family and not goAUPAIR.

When can a Host Family use their child care costs as a tax deduction?
Families can deduct these costs only for the calendar year pertaining to the tax year.  For example, if a family paid the initial payment in 2008 but the remaining fees in 2009 and the entire stipend in 2009, they can only deduct the remaining fees and stipend in 2009. The initial payment should have been claimed on your 2008 taxes. You can only deduct the expenses for the tax year in which they were paid. For counsel regarding your specific situation, please consult your tax specialist.

Can  Host Families who have a Dependent Care Flex Spending Plan through their employer benefits use that to pay for the cost of an Au Pair, including stipend, and agency fees?
Yes, these can be paid from a Dependent Care Flex Spending Plan. Some flex plans require the Au Pair to have a SSN as well as goAUPAIR’s Tax ID and invoices of payments. Families should always check with their Flex Plan provider for details specific to their plan.

Again, goAUPAIR is not a certified tax consult or C.P.A. The above is information to help guide you in your tax preparation and should be discussed in full with your tax specialist. For detailed questions please consult your tax advisor. If you need any information from goAUPAIR to correctly prepare your taxes please contact us.

Additional resources you may find helpful:
Top Ten Facts about the Child and Dependent Care Credit http://www.irs.gov/newsroom/article/0,,id=106189,00.html
Au Pairs Tax Information - http://www.irs.gov/businesses/small/international/article/0,,id=96420,00.html