As part of your nanny’s job, they take 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. So how do you handle the expenses of a child care provider driving your kids around?
What is the IRS Standard Mileage Rate For Reimbursement?
The IRS standard mileage reimbursement is a rate that covers the cost of gas and maintenance when using a personal car for business purposes. For 2022, the rate is 58.5 cents per mile. It’s the same rate as any other household employee who is transporting kids or running errands.
What Does the IRS Standard Mileage Rate Include?
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.
How Often Does the IRS Standard Mileage Rate Change?
The rate is updated annually with the following year’s rate announced in November. Changes can occur during the year if gas prices spike or drop significantly. The rate increase in 2022 was due in part to rising gas prices that were already occurring. The IRS may feel they have already addressed the issue and no further increase is needed. However, gas price increases have continued to accelerate in 2022 so it’s possible the IRS could increase the mileage rate again.
Are You Required To Reimburse Your Nanny For Driving?
While federal law does not require you to reimburse your employees for mileage, it’s best practice to pay your nanny for mileage based on the IRS standard rate.
However, in some states it actually is legally required to reimburse your employee for the miles they drive in their own vehicle while on the job. Those states include California, Illinois, Massachusetts, and Washington, D.C.
How Do You Reimburse Nannies For Driving On the Job?
Your Nanny Drives Your Car
If your nanny is driving a family car, it’s fairly simple. There is no reimbursement unless your nanny needs to pay for gas while out with the kids. Then they can submit that receipt with any other expenses they incurred that need to be reimbursed.
Your Nanny Drives Their Own Car
Your nanny just needs to keep track of the miles they drive while on the clock. They can include these miles on their timesheet, shared spreadsheet, or mileage tracking app.
You would repay your nanny for the miles driven multiplied by the current IRS rate. This is not taxed for you or your employee. Depending on how much your employee is driving, repayments can be made weekly, bi-weekly, or monthly. Typically reimbursements are made along with the nanny’s standard paycheck.
Since gas and mileage reimbursement is not taxable compensation, there’s a financial advantage to using the IRS standard mileage rate. However, any compensation for mileage paid above and beyond the IRS rate, however, would be considered taxable income.
Increasing Nanny’s Pay or Adding a Stipend
Other ways to compensate your employee for gas and mileage will likely be considered taxable income.
You could add a standard amount to your nanny’s paycheck each pay period to cover gas and mileage. This may work if your nanny drives the same number of miles each week as you are estimating their expenses. However, this type of stipend is taxable income for you and your employee.
Increasing Hourly Rate
Another option is to boost your nanny’s hourly rate to cover driving expenses. Again, this may seem like an easy solution, but it will cost you and your employee increased taxes on the extra pay.
Using An Expense Card
Some household employers provide their nannies with a family credit or debit card to cover any expenses while on the job like buying groceries, paying admission to activities, taking the kids out to lunch, and more. You could allow your nanny to pay for their gas on a family expense card. Since the IRS does not deem mileage reimbursement as compensation, it is not taxable to you or your employee. While this method may cover gas expenses, it does not consider the wear and tear your nanny is placing on their car while driving on the job.
Whichever way you decide to compensate your employee for mileage, include those details in your nanny contract. That way everyone is clear on how reimbursement will work.
You’ve Got Help
Our friends at GTM Payroll Services are the experts when it comes to properly managing in-home care for your family. To make things easier, Sittercity families get a free setup! All backed by a team of household employment experts available by phone, email, and chat. Sign up online or call (800) 929-9213 for a free, no-obligation consultation.
Want to know more about paying your employees legally and filing your taxes the right way? Get GTM’s complimentary Guide To Household Payroll.