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The Math regarding having an in home caregiver is not super simple, the wages encompass a mix of care-giving and in most cases housework. obviously a family does not get housework done using daycare. Lets look at an example.
Toronto 15.00/hr at 40hrs a week times 52 weeks a year divide by 12 months.
This is the only formula to use, there are different numbers of days in each month you cannot just use 40 hrs times 4 weeks.
31200.00/12= 2,600.00 per month in Ontario.
Total cash income 2,600.00
Taxable income for the pay period 2,600.00
Pensionable earnings for the pay period 2,600.00
Insurable earnings for the pay period 2,600.00
Federal tax deduction 176.66
Provincial tax deduction 102.09
Total tax deductions 278.75
CPP deductions 125.80
EI deductions 41.08
Total deductions 445.63 This is the amount you hold back from the nannies paycheck and submit to revenue Canada.
Net amount 2,154.37 This is one month of pay for a nanny in Ontario
Employee CPP contributions 125.80
Employer CPP contributions 125.80
Subtotal of Canada Pension Plan (CPP) 251.60
Employment Insurance (EI) Employee EI contributions 41.08
Employer EI contributions 57.51 Employers remit 1.4 times what the worker pays for EI
Subtotal of Employment Insurance (EI) 98.59
Tax deductions 278.75
For this calculation, remit this amount 628.94
Take the total of CPP and EI costs to the employer 139.67 plus 2154.37 = $2294.04 in Ontario that is the real monthly cost right now (March 2021).
In most cases both parents hold jobs that require a nanny, though if one parent is in training or school it still works. However the tax saving goes to the lowest wage earner in the home.
For a child under 7 the tax savings is 8000.00 per child, for a child 7-16 the tax savings is 5000.00 per child.
Here is an example of how this works
A family with 2 children under 7.
Lowest wage earner making 55,000.00 per year 31200.00 income for the nanny (Which qualifies for the max deduction). In this case the lowest wage earner in the home would pay tax on 39,000.00 instead of paying tax on 55,000.00 resulting in a refund of about 6000.00 (approx).
Bringing the actual cost per month down to about 2100.00 per month. Looking at the convenience and possibilities for extra income and promotion, and also considering you must get care for the children via daycare or day homes (which is not cheap either) having an in home caregiver is still the best deal for care for the children and family.
1.38.1 For 2015 and subsequent tax years (see ¶1.38.2 for 2014 and previous tax years), the annual child care expense amount is determined as follows:
For a child in respect of whom a disability tax credit may not be claimed, the annual child care expense amount is:
$8,000 for each child under seven years of age at the end of the year;
$5,000 for each child over six years of age at the end of the year and under 16 years of age at any time during the year; or
$5,000 for each child over 15 years of age throughout the year who has a physical or mental infirmity and is dependent on the taxpayer, or the taxpayer's spouse or common-law partner (see Income Tax Folio S1-F4-C1, Basic Personal and Dependant Tax Credits for more information).
For a child in respect of whom a disability tax credit may be claimed under section 118.3, (see Income Tax Folio S1-F1-C2, Disability Tax Credit for information on determining whether a person qualifies for the disability tax credit), the annual child care expense amount is $11,000. ¶1.48 discusses the potential impact of a child care expense claim on a taxpayer’s entitlement to claim a disability tax credit supplement.