Q and A: The Undocumented Nanny or Housekeeper and Immigration Reform

HomeWork Solutions has experienced a dramatic increase in the volume of calls from employers of undocumented household workers in the past weeks.  The extensive media coverage of Washington’s renewed, bipartisan commitment to implement comprehensive immigration reform - and create a path to citizenship for undocumented workers - raises questions for families employing undocumented domestic service workers.

Both the Senate’s and the President’s current proposals for providing a path to citizenship include the requirement of the payment of back taxes.  Employers want to understand:

• What are my unpaid tax liabilities if we put our nanny on the books?
• Will “catching up” with back taxes improve my employee’s chance to work legally in the US and get on a path to citizenship?

We don’t yet know the specifics of any new legislation, but it appears clear that payment of some back taxes will be a key requirement.  Here are some of the questions we hear most often. 

Q. If my undocumented employee can’t receive benefits, why would we pay taxes?  It seems illogical.

Frankly, families are required to pay these employment taxes for their household workers - including undocumented nannies - regardless of their immigration status.  As an employer, you are required to pay the same Social Security, Medicare and unemployment taxes that you would for a documented worker.

Many employers think that if their employee has no social security number and is not eligible to receive benefits, that they are not required to pay employment taxes.  They may also think that if the employee has no Social Security number, they cannot issue them a W-2.  That is not true. 

The IRS requires that workers ineligible for Social Security numbers file form W-7 to request an Individual Taxpayer Identification Number (ITIN) when the worker files his/her first income tax return.  This number will be used on all tax reports and returns going forward, including Form W-2. Once they obtain an ITIN, employees are required to file income tax returns. 

Q. What happens to Social Security and Medicare taxes collected on behalf of these workers who are currently ineligible to receive benefits?

The taxes go into the Social Security and Medicare trust funds.

Should the worker apply for legal status in the future and become eligible for a Social Security number, all the tax credits would go into their account.

Q. If I obtain an ITIN for my employee and file employment taxes, do I increase my risk of being discovered for hiring an undocumented worker?

Current law prohibits the IRS from sharing this information with Immigration and Customs Enforcement.  So it is unlikely that complying with employment tax law would increase this risk.

Q. Will paying the unpaid employment taxes for prior years improve my employee’s chance of obtaining legal status in the United States?

Again, we do not yet know the specifics of the new legislation.  However, it appears that not only would it improve the employee’s chances of gaining legal status, payment of prior years’ taxes will be required.

Note: Historically, failure to pay taxes has been a leading reason for the denial of an alien’s immigration petition, on the grounds that it shows lack of “good moral character”.

It is not too late to take care of this year's household employment tax filings - avoid Federal tax penalties by dealing with this before April 15. Call 800.626.4829 for a complimentary consultation.

For more information on undocumented workers and taxes, go to the FAQ section of our website.  Please check out this blog frequently as we will continue to follow Immigration reform and provide updates, especially as they pertain to household employers and their domestic workers.