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We employ a nanny to care for our children. Can a MERP be used as part of her compensation? Any advantage to her or us?

by Tom Luker on 05/12/15

Sure, a domestic employee can be treated just like an EE of any “business,” except that the W-2 issuer is a non-business person, which can have certain expenses connected to any employee's compensation package. 

  • The nanny would receive a portion of her comp in the form of a tax-free MERP.
  • For simplicity, a fixed amount of health insurance premium would be best.
  • The same is true of other domestic workers like lawn care, but usually those type services are provided by a 1099 biz.
  • The advantage is that the EE receives a portion of a “wage agreement” in a tax-free form and thus saves FICA and income taxes which might be 7.65% to 20%.
  • Finally, the family saves FICA and WC taxes, which amount to at least 8% savings.
  • We provide the same paper work back-up, of course.

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