Why should I pay nanny taxes?

If you’re thinking, “Why should I pay nanny taxes? No one else pays them and I’m not running for public office.” There are three reasons you should pay nanny taxes:

It’s the right thing to do – not only are you protected if audited, but your employee benefits from being paid legally. She will have a record of what she earned which is necessary when making a large purchase like a house or car or when applying for health insurance. When she retires, she may be eligible for Social Security Benefits and Medicare coverage. She may also be eligible for unemployment benefits if she loses her job through no fault of her own. Currently, she can also benefit from reduced health care costs via subsidies provided by the Affordable Care Act. The peace of mind this offers your employee is a real benefit for her and she will be better off by getting all the benefits other professionals enjoy.

Families can also benefit from doing the required tax reporting. Employers may be eligible for money saving tax breaks by paying nanny taxes. There are two strategies to reduce nanny taxes: Flexible Spending Accounts and the Child and Dependent Care tax credit. These tax breaks may offset most of the employer tax cost. See How can I save money by paying nanny taxes for more information.

The IRS will catch you. Paying your employee “under the table” is illegal. If you don’t report your household employee’s wages and don’t pay the associated taxes and you are audited, you will be subject to penalties and interest. You could be subjected to felony tax evasion charges, with possible fines and/or imprisonment! There is less worry about being audited by the IRS or the state if you just comply with the law.

See Can the IRS catch me if I haven’t paid my nanny taxes? for more information.

See What Are the Risks of Paying Your Nanny “Under the Table”? for more information.

Back to top