How to Reimburse Your Nanny for Gas and Mileage
When your nanny is responsible for driving your children to various activities, it's important to reimburse them for their gas and mileage expenses. Doing so not only ensures fairness but also helps you avoid potential tax-related issues. Our agency will provide you with clear and professional guidance on how to appropriately reimburse your nanny for their travel expenses, whether they use a family car or their own vehicle. Let's explore the best practices to ensure a smooth and fair reimbursement process.
Gas and Mileage Reimbursement: Nanny Driving a Family Car
If your nanny uses a family car, the reimbursement process is relatively straightforward. In this case, reimbursement is not required unless your nanny needs to pay for gas while they are out with the kids. In such instances, they can simply submit the gas receipt along with any other relevant expenses that require reimbursement.
While federal law doesn't mandate mileage reimbursement for employees, it's worth noting that in certain states, such as California, Illinois, Massachusetts, and Washington, D.C., it is legally required to reimburse your nanny for the miles they drive using their own car while on the job. This reimbursement should be made at the IRS standard mileage rate (which, for 2023, is 65.5 cents per mile).
Even in states where it's not mandatory, it is considered a best practice to compensate your nanny for mileage based on the IRS standard rate.
Please keep in mind that your nanny's commute to and from your home should not be counted as part of their mileage reimbursement.
The IRS standard mileage rate is a predetermined rate that covers various expenses associated with using a personal car for business purposes, including gas, insurance, maintenance, and depreciation. This rate eliminates the need for guesswork on your part and provides a fair and comprehensive reimbursement to your nanny. It is updated annually, with the new rate typically announced in November. Adjustments to the rate may occur throughout the year in response to significant changes in gas prices.
Since gas and mileage reimbursement is not considered taxable compensation, utilizing the IRS standard mileage rate offers a financial advantage for both you and your nanny.
Your nanny simply needs to keep track of the miles they drive while on the clock. They can record these miles on their timesheet, a shared spreadsheet, or a mileage tracking app.
To calculate the reimbursement amount, you would multiply the miles driven by the current IRS rate. Again, this reimbursement is not taxed for you or your employee. Depending on the frequency of your nanny's driving, you can choose to make reimbursements on a weekly, bi-weekly, or monthly basis, typically alongside their regular paycheck.
It's important to note that any compensation paid above and beyond the IRS rate would be considered taxable income.
While using the IRS standard mileage rate is the preferred approach, there are alternative methods to consider, although they may have tax implications.
One option is to add a standard amount to your nanny's paycheck each pay period to cover gas and mileage expenses. However, this type of stipend would be considered taxable income for both you and your nanny.
Alternatively, you could increase your nanny's hourly rate to encompass driving expenses. It's worth noting that this approach would result in increased taxes on the additional pay. Some household employers provide their nannies with a family credit or debit card to cover expenses incurred while on the job, such as groceries, admission fees, or lunches for the children.