Oh what a tangled web we weave...

We recently worked with a New York client who let his nanny of 10 months go. The nanny, of course, filed for unemployment benefits. The client was dutifully registered as a household employer and had been paying the taxes per the documents we prepared. Sounds pretty straight forward, except...

This client reported that the employee received $200 per week. However, in reality the nanny was receiving $600 per week in cash. When she filed her claim, she declared the $600 per week, causing the unemployment compensation staff to raise a flag.

So, the employer was faced with a dilemma. Should they correct the record and pay the associated taxes and penalties, or should they "stick to the story" and sign paperwork under penalty of perjury disputing the nanny's claim? At the end of the day, the employer corrected the record, paid the additional taxes, and paid NYS over $1100 in penalties/interest. The employer also had to amend his previously filed 2008 tax return, correct the employee's 2008 W-2, and pay the additional Federal taxes and interest.

In today's economy, nannies are spending longer periods between jobs and many who were happy to be paid in cash in the past realize that unemployment benefits are the only things between them and eviction. Faced with these difficult choices, the nanny will "give up" the former employer, creating weeks of headaches and expense for the former employer. All the more reason to do things right the first time!

Want to learn more about the "nanny tax" and the employer's legal and financial obligations? Download HomeWork Solutions' free e-Book, the Nanny Payroll Tax Quick Start Guide.