Having a child is a big commitment – it takes time, patience, and money, but the rewards of being a parent are unlike anything else in life. For many parents, the change in lifestyle that comes with parenting means that you need some extra hands. This often comes in the form of hiring a reliable nanny to care for your kids. When you find a nanny that you and your children love and trust, you have hit the jackpot. But what happens when it comes time to figure out nanny taxes? Filing, calculating, and paying these taxes can be confusing and for many families with household employees, they think they can just skip paying them altogether by paying their caregivers under the table. Unfortunately, this is both unethical and illegal, and can send your nanny a message you don't intend about her value and worth. You’re required to pay your household employee legally. Here are some reasons to why you should pay your household workers legally and how it can benefit you and your employee.
Reason #1: Paying household employee taxes will benefit your nanny.
If you appreciate and respect your household employee for the work that he/she is doing in your home, you’ll need to make sure that they’re compensated fairly, and that includes paying appropriate taxes on their behalf. If you decide to pay them cash without legal documentation of wages, this could be detrimental for them. They could lose access to unemployment or disability benefits, Medicare, Social Security, or even worker’s compensation. If something ever happened to where they were unable to work, they would have difficulty looking after themselves, simply because they would have no access to any legal benefits that they should have had all along.
Reason #2: Paying household employee taxes means you respect them as a working professional.
Not only is paying taxes the right thing to do for your nanny and their long term benefits, but it will also show them that you respect them as a professional. The key to creating a successful working relationship with any employee is establishing respect and paying taxes means you’re dedicated to building a strong relationship now and into the future.
Reason #3: Paying household employee taxes will protect you and your family.
At first glance, it may seem more convenient and cheaper to skip paying nanny taxes, but in fact, this is illegal and could mean that you’re taking the risk of facing tax fraud if you’re caught. If the IRS becomes suspicious and needs to investigate your tax payment history and finds out that you have not been paying your household employees fairly, you may need to back-pay all taxes, pay penalties, or in some cases could face federal tax fraud charges or tax evasion charges.
Paying your household employees by following all federal and state tax guidelines is the right thing to do. You’ll avoid costly fines or penalties, you’ll protect yourself as well as your employees, you’ll benefit from government tax breaks, and you’ll help give your employee the opportunity to build a solid employment history with benefits that will last well into the future.
If you’re unsure of how to go about paying taxes for your household employee, plan ahead and start working with a household payroll specialist. This will help you stay organized and can help you better comprehend how the payroll process works as an employer.