If your nanny drives their car while on the job, it’s a best practice to reimburse them for gas and mileage. Our payroll partners at GTM Payroll Services show you how to do it the right way and avoid any additional taxes for extra compensation.
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.
How do you reimburse your nanny for gas and mileage while driving on the job?
Gas and mileage reimbursement: nanny drives a family 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.
Gas and mileage reimbursement: nanny drives their own car
But what if your nanny uses their own car while on the job?
While federal law does not require you to reimburse your employees for mileage, in some states like California; Illinois; Massachusetts; and Washington, D.C. it is legally required to reimburse your employee for the miles they drive in their own vehicle while on the job. And that would be at the IRS standard mileage rate (for 2023 the rate is 65.5 cents/mile).
Even outside of those states, it’s a best practice to pay your nanny for mileage based on the IRS standard rate.
Your nanny’s commute to and from your home doesn’t count toward their mileage reimbursement.
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. If you travel for your job, you may be familiar with this rate. It’s the same idea for a nanny or any other household employee who is transporting kids or running errands.
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.
It’s updated annually with the following year’s rate announced in November. Changes can occur during the year if gas prices spike or drop significantly.
How to reimburse your nanny using the standard mileage rate
Since gas and mileage reimbursement is not taxable compensation, there is a financial advantage to using the IRS standard mileage rate.
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. Again, 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 with the nanny’s standard paycheck.
Any compensation 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. A couple of these methods include a mileage stipend and increasing your employee’s hourly rate.
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.
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 with 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 doesn’t consider the wear and tear your nanny is placing on their car while driving on the job.
Include mileage reimbursement in your nanny contract
However 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.
GTM can help
Have questions about paying your nanny? We can help. Get a complimentary, no-obligation consultation with a household employment expert. Just call (800) 929-9213 or schedule time with us at your convenience.
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