This is a question that more and more household workers are asking as they face retirement. For workers who have been paid “off the books” – and that includes a large percentage of household employees – there is no easy answer.
Just last week, I was contacted by Sue Shellenbarger, a columnist at the Wall Street Journal who writes their Work & Family column. A 63 year-old reader wrote and posed that question to her and she was looking for an answer for her reader. In fact, when a worker applies for benefits and there is no employment history, it can create huge problems for both the worker and the families who employed them. As Ms. Shellenbarger summarized, “ (this) poses a risk for the domestic workers who lack a safety net, and for their employers, who face audits and penalties if an employee later files for benefits and reports the income."
A nanny or other household worker who was paid under the table most of her working career will only qualify for $700 a month in Social Security benefits!
The trend is for fewer and fewer families with domestic workers to report their household payroll. When a family reports household payroll "on the books", they file a Schedule H along with their Form 1040. According to the IRS, Schedule H filings have dropped from 500,000 in 1994 to 207,111 in 2006. In 2009, the latest year IRS data is available, the number of filings was down to about 202,000.
This is an alarming trend as the number of domestic workers, especially senior caregivers, is rising. It is very likely that more aging workers will find themselves in the same position as Ms. Shellenbarger’s reader.
If you are an employee, read our article, “Why Nannies Want to be Paid Legally” for an overview of the benefits to you of being paid “on the books”. (http://www.4nannytaxes.com/index.cfm/resources/10-tips-series/pay-nanny-legally/)
If you are an employer, there are clear advantages to both you and your employee of being paid “on the books” and avoiding serious complications in the future. Download our free Tipsheet: “10 Tips: Avoid Common Nanny Payroll and Legal Mistakes”.