Nanny Taxes Can Apply to Eldercare

Thursday's Wall Street Journal issued a clear and well researched reminder to families that home health aides or elder caregivers employed by the family are subject to the "nanny taxes."

The term "nanny taxes" refers to the collective employment taxes (Social Security, Medicare, unemployment insurance) that household employers are obligated to pay when they employ a "domestic" (nanny, housekeeper, maid, elder caregiver, home health aide) to provide services in their private home.

Conservative estimates are that the US Treasury fails to collect nearly $7B a year in employment taxes for nannies. Factor in housekeepers, maids, and elder caregivers, and this number exceeds $30B. The Obama administration has stated its intention to close the "tax gap" by means of vigorous enforcement of the Internal Revenue Code and increased funding for tax collection activities.

Families avoiding the "nanny tax" are in jeopardy for more than simply the unpaid employment taxes. Families not paying their employment taxes are unable to obtain Worker's Compensation Insurance, to cover their liability if their employee is injured on the job. The financial implications of an employee injury that must be compensated by the family (instead of the insurance company) are enormous.

Much attention has been paid in recent months to household employer's risks when they lay off a nanny or housekeeper and that worker files for unemployment insurance. The Obama administration must aggressively collect taxes to fund it domestic agenda, and the nanny tax gap is relatively easy to identify and enforce.