New Tax Savings for Nannies & Families

At Nashville Nanny Agency, we love keeping our families and nannies informed about changes that can make a real difference in their lives. New legislation signed in July 2025, there are some exciting updates coming that will benefit both nannies and the families who employ them.

Overtime Tax Deduction for Nannies

The “One Big Beautiful Bill Act” created a brand-new tax deduction specifically for overtime pay. This is a big win for household employees, especially nannies who often work beyond the standard 40-hour week.

Here’s what nannies need to know:

• A New Way to Save
  Nannies can now reduce their federal taxable income by up to $12,500 (single filers) or $25,000 (married filing jointly) if they’ve earned qualifying overtime.

• How Much Can They Save?
  Most nannies who work overtime fall within the 22% federal tax bracket. That means:

  • A nanny earning $5,200 in overtime pay could save $1,144 in federal income taxes.

  • A nanny earning the maximum $12,500 in overtime pay could save $2,750.

• Not All Overtime Qualifies
  Only overtime required by the Fair Labor Standards Act (FLSA)—hours worked beyond 40 in a week—counts toward this deduction.

• It’s the “Extra” Pay That Matters
  The deduction applies to the “premium” portion of overtime (the extra half). For example, if a nanny earns $20/hour regularly and $30/hour for overtime, they can deduct the extra $10/hour.

• No Itemizing Required
  This is an above-the-line deduction, which means nannies don’t have to itemize to claim it. They can still take the standard deduction.

• A Limited-Time Benefit
  This deduction is in place for tax years 2025 through 2028.

What Families Should Know

Household employers also have a few new responsibilities:

• W-2 Reporting: Beginning in 2025, qualified overtime pay must be reported separately on Form W-2.

• Transition Flexibility: For 2025, the IRS is allowing employers to use reasonable methods to approximate qualified overtime reporting.

• Future Withholding Updates: Starting in 2026, the IRS may update federal withholding procedures for employees earning significant overtime.

The good news? Families working with Nashville Nanny Agency don’t need to worry—we will put you in touch with a payroll company that will take care of everything for you!

More Tax Breaks Coming in 2026

On top of the overtime deduction, families will see even more savings starting in 2026:

• Dependent Care Flexible Spending Account (FSA)
  The cap increases from $5,000 to $7,500, meaning families can set aside more pre-tax dollars for childcare and save up to $3,000 in federal taxes.

• Child & Dependent Care Tax Credit (CDCTC)
  The top credit percentage jumps from 35% to 50%, and income thresholds will shift upward, allowing more families to qualify for higher credits.

Why This Matters

For nannies, this is about keeping more of their hard-earned pay. For families, it means affordable childcare becomes even more attainable. And for both, it underscores the value of paying legally and partnering with an agency that understands every detail of household employment.

At Nashville Nanny Agency, we’re here to guide you through these changes, ensure compliance, and help you maximize the benefits.

✨ Next Step for Families: If you’d like to learn how these tax changes could affect your household budget, reach out to us. We’ll walk you through the numbers and help you create a seamless plan for hiring and paying your nanny.