Why should you pay the 'Nanny Taxes'?

Approximately 1.5 million American families fail to pay their Nanny Taxes, cheating their nannies and housekeepers of retirement and unemployment benefits. This number has steadily increased over the last decade, despite Congress' efforts and the fact that these families commit perjury on their family tax returns every year.

Prosecution for failure to file and pay the nanny taxes is rare. Why should you pay the nanny taxes anyway?

1. Statue of Limitations? There is NO statue of limitations for failure to pay federal employment taxes. The family who fails to collect and pay the federal employment taxes becomes responsible for BOTH the family and the employee contributions if challenged at a later date. We recently assisted a widow's estate with a $95K employment tax nightmare - when grandma passed on, her former housekeeper of 18 years filed for Social Security Benefits, only to find that no earnings had been reported for close to 2 decades.


2. Nanny taxes as a weapon in a divorce - really! Seeking to improve her property and maintenance settlement, a wife threatened to turn over her soon-to-be-exes income tax returns to his law firm demonstrating that he didn't pay his nanny taxes! Tax fraud routinely results in disbarment. The attorney engaged us to assist with filing 3 years of amended tax returns to remove the threat.


3. Whoa! Your housekeeper was injured on the job and requires medical care. Your homeowner's insurance does not cover your employees - that is what you need worker's compensation insurance for. You can only obtain this coverage when you are paying the nanny or housekeeper legally. Without the proper insurance, the family will be held liable for medical costs, rehabilitation costs and lost wages. Sadly, we speak to at least one family a year facing thousands of dollars in nanny medical expenses they never even considered. By the time the accident occurs, it is too late to get the insurance coverage.


4. Valuable tax credits! Your nanny's payroll and associated taxes may be used to qualify for special tax treatments afforded to child care expenses. The positive benefit of these tax breaks can often completely off-set the family's expense for tax compliance.


5. Your nanny is likely to file for unemployment benefits when the relationship ends. This is the most common way families get 'caught' cheating on the nanny taxes. The nanny needs these benefits to tide her over until she finds another job. In the case of the live in nanny who is let go, her need is even more dire. She won't think twice about filing for these benefits and the possible consequences to her former employer.

I have provided nanny tax compliance services for 15 years. I assure you, in every one of the client profile situations above the family really thought that not paying the nanny taxes was not a big deal - until it came back to haunt them.