Many household employers mistakenly assume that because the employment of domestic work is within their own home, they are unlikely to get caught paying their employee illegally. Because there is a long history of household employment being paid in this way, many employers assume that this is the accepted way of paying for work in the home. Even if they are aware of the consequences, many believe getting caught is so unlikely to happen that the risk is worth it. This is not the case.
Paying your nanny off the books may mean an employer is investigated by the IRS. Some of the circumstances where this might occur include:
- If you have formerly paid payroll taxes on past household employees but then do not with a new employee.
- You use an agency or an online registry and the IRS audits that entity for information about household employers not reporting payroll taxes.
- You terminate an employee who has not been paid legally and they complain to the IRS.
- You have mistakenly assumed the employee is an independent contractor and not an employee, so have not withheld the correct tax obligations.
- A former employee files for unemployment benefit but cannot get it because you have not paid unemployment tax.
- An employee is injured on the job so tries to claim worker’s compensation and has to name you as the employer.
- A retired employee wants to claim social security and reports working for you.
Ignorance is no excuse for breaking the law. As an employer, it is critical for you to understand the laws and regulations governing household employment, payroll taxes, hiring, and more.
What if a Nanny Wants to Be Paid Off the Books?
Now you know the risks. An injury at work leads to a workers’ compensation claim and hefty fines. A nanny let go files for unemployment, which can lead to fines and penalties. And suppose you have a security clearance or professional certification to maintain. In that case, your career can be put in jeopardy by any type of tax evasion, including failing to pay your nanny taxes.
Often, nannies do not see the bigger picture when it comes to being paid legally and what benefits (both immediate and long-term) they may be missing.
A big reason why nannies want to be paid off the books is to take home more money. Who doesn’t want that?
But the benefits of legal pay far outweigh the small amount taken out of their paycheck each week.
With on-the-books pay, they have a legal employment history and verifiable income when applying for car loans, credit cards, or a mortgage, and even show that they can pay rent. None of this is possible without proof of a job and a steady income.
Nannies and other household employees can also use tax breaks and tax credits like the Earned Income Tax Credit (EITC).
The EITC helps low- to moderate-income workers and families get a tax break. If they qualify, they can use the credit to reduce the taxes they owe and maybe increase their refund.
Help for Paying a Nanny Legally
By using a household payroll service like our partner, GTM Payroll & HR, you’ll spend less time worrying about complying with laws and spend more time with your family.
Contact us for more information, or simply get started today with a FREE household payroll consultation from GTM!