Paying Nanny Under the Table - Potentially an Expensive Experience
Many families - 70 - 80% according to IRS estimates - choose to pay their nanny under the table. This 'saves' the family the approximately 10% premium on employment taxes, and maximizes the nanny's take home since she does not make the Social Security, Medicare, and income tax contributions that other US wage earners do.
Sounds like these families have found a money saving proposition, right? The true answer is maybe, and maybe not!
Nanny positions are, by their nature, not permanent positions. The children will grow, move on to preschool, kindergarten, elementary school. The family's child care needs change dramatically from full time, to part time, to after school or before school only. The full time nanny typically will have to move on after a few years, as they cannot live on the reduced income.
Nanny positions do not always end pleasantly - a family that suffers a job loss, for example, may dismiss the nanny without notice because they don't have the current income to support the nanny. Nanny may not live up to the family's standards and be similarly dismissed without notice or severance. Our 15 years of experience indicates that nanny job loss almost inevitably results in a trip to the local unemployment office and an application for benefits to tide the nanny over until the next job - irrespective of whether taxes were paid or not! Guess what? Nanny can receive these benefits even when you didn't report her income.
The Los Angeles Daily News recently interviewed accountants and tax experts and came to the same conclusion. California accountant Eva Rosenberg shared the experience of a client who fired their nanny, only to have the nanny file for unemployment benefits. The state assessed the family back taxes, penalties, interest and reported the family to the IRS.
Many parents do not realize that the expense can be offset - often entirely - by available tax incentives. A dependent care account, funded to the maximum $5000 annually, can reduce a family's tax burden by $2000 or more - offsetting the employment taxes on the first $20K they pay the nanny annually! If a dependent care account is not offered by one of the parent's employers, they can look to the Child Care Credit and a possible $1200 tax break. These tax incentives are not available to families who pay their nanny under the table!
There are solutions for the nanny tax paperwork readily available. For about $1 a day, families can outsource their nanny tax compliance paperwork to a firm like HomeWork Solutions Inc., a national nanny tax services company offering their services to families for 15 years. Full payroll and tax compliance services are as little as $2 per day! Peace of mind does not come with an expensive price tag!
Do you want to learn more about nanny tax compliance and 'getting right' with the IRS? Call 1-800-NaniTax (626.4829) and talk to Marcia or one of our other nanny tax specialists. They will be happy to walk you through your options and get you started down the road to nanny tax compliance.
Sounds like these families have found a money saving proposition, right? The true answer is maybe, and maybe not!
Nanny positions are, by their nature, not permanent positions. The children will grow, move on to preschool, kindergarten, elementary school. The family's child care needs change dramatically from full time, to part time, to after school or before school only. The full time nanny typically will have to move on after a few years, as they cannot live on the reduced income.
Nanny positions do not always end pleasantly - a family that suffers a job loss, for example, may dismiss the nanny without notice because they don't have the current income to support the nanny. Nanny may not live up to the family's standards and be similarly dismissed without notice or severance. Our 15 years of experience indicates that nanny job loss almost inevitably results in a trip to the local unemployment office and an application for benefits to tide the nanny over until the next job - irrespective of whether taxes were paid or not! Guess what? Nanny can receive these benefits even when you didn't report her income.
The Los Angeles Daily News recently interviewed accountants and tax experts and came to the same conclusion. California accountant Eva Rosenberg shared the experience of a client who fired their nanny, only to have the nanny file for unemployment benefits. The state assessed the family back taxes, penalties, interest and reported the family to the IRS.
"Since no payroll tax returns had ever been filed, there is no statute of limitations," Rosenberg said. "They can go back forever. It could be nasty."Parents commonly cite two overriding reasons for their tax evasion - the expense and the paperwork.
Many parents do not realize that the expense can be offset - often entirely - by available tax incentives. A dependent care account, funded to the maximum $5000 annually, can reduce a family's tax burden by $2000 or more - offsetting the employment taxes on the first $20K they pay the nanny annually! If a dependent care account is not offered by one of the parent's employers, they can look to the Child Care Credit and a possible $1200 tax break. These tax incentives are not available to families who pay their nanny under the table!
There are solutions for the nanny tax paperwork readily available. For about $1 a day, families can outsource their nanny tax compliance paperwork to a firm like HomeWork Solutions Inc., a national nanny tax services company offering their services to families for 15 years. Full payroll and tax compliance services are as little as $2 per day! Peace of mind does not come with an expensive price tag!
Do you want to learn more about nanny tax compliance and 'getting right' with the IRS? Call 1-800-NaniTax (626.4829) and talk to Marcia or one of our other nanny tax specialists. They will be happy to walk you through your options and get you started down the road to nanny tax compliance.
Labels: nanny tax avoidance, nanny tax compliance, nanny tax enforcement, nanny tax evasion
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