While paying nannies legally has become more the “norm” in recent years, some families still don’t understand the benefits to both them and their nanny from paying “on the books.”
If you are a nanny and you come across a family that does not want to pay taxes for employing a nanny, ask us for help in explaining to the family that it is truly in their best interest to pay you properly and legally.
Some of the following reasons may also help:
Tax Breaks for Families
There are two main tax breaks that can offset your employer’s tax costs. By legally employing someone in their home (paying “on the books”), they will be able to take advantage of one of the two following tax breaks:
- Dependent Care Assistance Program (DCAP) – Most companies provide this benefit and allow employees to contribute up to $5000 of pre-tax earnings to a Dependent Care account. They would then be reimbursed these tax-free funds to cover childcare expenses.
- Child and Dependent Care Tax Credit – For those who don’t have access to a Dependent Care Account, they can claim up to $3,000 of the un-reimbursed qualifying child care expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals.
Your employer must report your wages and the taxes they withheld for you on their personal income tax return. The IRS figures to catch a lot of people who forget to tell them about their nannies.
Benefits for Nannies
You can receive workers’ compensation, which in turn protects your employer if you get hurt on the job.
You will be eligible for Social Security and Medicare benefits, as well as unemployment insurance.
You will have a legal employment history, which is necessary to obtain a mortgage, car loan, or credit card.
Remember, it’s not only in the family’s best interest to pay legally – it benefits the nanny as well.
Contact us if you have any questions or need further advice on talking to your employer about being paid legally.