A woman who works as a nanny and housekeeper wrote into the Wall Street Journal recently. Her employers had paid her under the table for years. As a result, at she’s facing retirement with only a miniscule Social Security benefit.
This drives me nuts. If you can afford to hire a nanny or a housekeeper, you can afford to pay her taxes.
Yes, you can.
The employer half of payroll taxes for Social Security and Medicare is 7.65%. The cost of hiring someone to do the paperwork is around $500 a year. (I use the Nanny Tax Company, which charges a $100 one-time set up fee and a $475 annual preparation fee. Each additional employee after the first one is $125.) Those aren’t exorbitant sums. If you can afford to hire help, you can afford to pay the taxes that are legally required as a household employer.
(I’m assuming that your household help can legally work in the U.S. If that’s not the case, well—that’s a matter for a whole different column.)
There’s a line between frugal and cheap. You cross that line when you force other people to pay the price while you save money. The people you entrust with your children and your home deserve better.
I can see your point and while I have no argument that paying taxes is legally required some nannies make the choice to have a higher hourly rate now for forgoing taxes. Employers are not always the villain here.
It’s a choice they’ll likely live to regret, and one that puts you on the wrong side of the law (not to mention setting a bad example for the kids) if you cooperate.
While I agree that you should pay the taxes you legally owe, the nanny in question made her own bed. She got years of tax-free income and she should have saved some of it.
The nanny in question asked to be paid on the books but her employers refused. I personally know a couple of nannies who would have said, “Forget it, then,” but I know more who would have meekly accepted their position. In any case, we don’t know whether she saved, but we do know she doesn’t have the Social Security benefits she would have had if her employers followed the law.
The truth is, you should protect *yourself*. Even if you have a (illegal) agreement to pay them under the table, nothing stops them from turning around afterwards and reporting you to the IRS. Then you’ll not only have to pay the taxes, but penalties as well.
Not paying your nanny tax is tax evasion (vs. tax avoidance, which is legal and appropriate).
I have had several nannies and caregivers over 10 years and three children. Out of 14 different caregivers 12 of them asked and pleaded to be paid under the table. I did not want this for several reasons. Many caregivers do not want to have the income on their taxes. They of course are not conceredwith legalities or their future. But just wanted to agree that yes they should be paid as employers but, it is typically the caregiver who asked to be paid cash. Also I have three close friends and they all are in a similar situationso I know it is very common for it to be the caregiver wanting to be paid under the table.
We just had our 1st child last year and although we didn’t use a babysitter often we would have gotten a nice tax return if we had been able to file for the child care credit. Our primary sitter didn’t want to file her earnings, though. In our case we are losing out, she has a regular job and just does the babysitting for extra money but we lose the tax credit. We have decided that next year we are only using sitters who are willing to declare the income.