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My nanny or caregiver is not a legal resident. What should I do about employment taxes?

The Internal Revenue Code maintains that the immigration status of your nanny or other employee has no bearing on your obligation for employment taxes. Immigration enforcement in the Obama Administration is focused on penalizing the EMPLOYERS – particularly prosecution for employment tax fraud. Employing an undocumented worker is a violation of immigration law. Failure to pay employment taxes for ANY worker, legal or undocumented, is felony tax evasion.

Nanny Taxes & the Undocumented Nanny FAQ

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 tax return. (Unfortunately this means the employer will not be able to include tax identification on the first Form W-2 that is issued.) This number will be used on all tax reports and returns going forward, including Form W-2. The IRS is currently prohibited from sharing this information with Immigration and Customs Enforcement [ICE] (formerly Immigration and Naturalization Service [INS]) by law – see THE PRIVACY ACT OF 1974 5 U.S.C. § 552a). It is this explicit promise of confidentiality that allows non-documented nannies to file their taxes without fear of being deported.

What the ITIN Does

      • Enables employers to report wages paid to the domestic employee without fear that the tax returns will be rejected due to missing or inaccurate SSNs.
      • Enables employers to issue Form W-2 to workers ineligible for a SSN.
      • Enables employers to claim the Child Care Credit or the Child and Dependent Care Account.
      • Enables individuals ineligible for a SSN to file US Income Tax returns.
      • Enables individuals ineligible for a SSN to receive a cash refund of income taxes.
      • MAY assist individuals in applying for legal immigration status if immigration reform proposals are enacted.
      • Enables individuals ineligible for a SSN to open bank accounts and credit accounts with certain banks.
      • Enables individuals ineligible for a SSN to apply for mortgage loans.

What the ITIN Does NOT Do

      • Confer eligibility for employment.
      • Confer legal immigrant status.
      • Make the worker eligible for Social Security or Medicare benefits.
      • Confer eligibility for the Earned Income Tax Credit.

The valid range of ITIN’s is 900-70-0000 through 999-88-9999, all numeric values. These numbers are issued to the taxpayer on a letter from the IRS – there is not an “ITIN card.” Starting in 2016, ITINs expire automatically if the numbers had not been used in the last 5 years. All ITIN’s must be used to file a return or they will expire and be reassigned. This includes those issued before 2013.

Non-payment of taxes is a leading reason for denial of an alien’s immigration petition. Immigration and Customs Enforcement (ICE) can consider the failure to file an income tax return, if a person earned enough to be required to file, as proof that the noncitizen doesn’t have the “good moral character” required of applicants for US citizenship. Failure to file income tax returns or an improperly prepared tax return can cause problems when the permanent resident files for US citizenship or when a US citizen or permanent resident tries to help family members immigrate.

Nannies filing and paying their income taxes using an ITIN are ineligible for many refundable tax credits.

Undocumented Immigrant Nannies in the News

The issue of illegal immigration and a citizenship path or amnesty for undocumented foreign workers in the United States is a major political issue at this time. Recent 2014 executive action by the  Obama Administration will have dramatic consequences to the many employers, including families, who currently employ undocumented workers if enacted.

February 2013 Update: Blog Post Immigration Reform and Undocumented Domestics

Many households employ undocumented immigrants as nannies, housekeepers, groundskeepers, etc. Some of these households already comply with employment tax reporting; the majority do not. All of the various proposals being discussed in Washington include either a Guest Worker program, an amnesty program with a citizenship path for undocumented immigrants already working in the U.S., or both. There are, however, conditions that must be met by the illegal immigrant to qualify.

What does this mean to the household employer?

It is expected that all applications for immigrant legalization will include a detailed examination of the immigrant’s background, including their employment history while in the United States. Immigrants applying for a Green Card or other legalized status will be required to document tax compliance. All plans include an examination of tax return records going back a minimum of 3 years. The illegal immigrants will be highly incented by the promise of legal status, and it is expected there will be significant pressures on current employers who have been paying these immigrants ‘under the table’ to come clean and catch up on tax payments so the immigrant can take advantage of a legalization program. Remember, it is the household EMPLOYER who pays the employment taxes AND provides the W-2 forms.

We prepare back tax returns. Call for fees.

I’ve given my undocumented nanny a W-2 form? What does she do?

The majority of illegal or non-documented workers issued W-2s will file a US Income Tax return as a resident alien. A resident alien is an individual who is not a citizen or national of the U.S. and meets the green-card or substantial-presence test. U.S. citizens and resident aliens are subject to the same taxation. The ITIN of the non-documented resident alien is used to track the tax reporting and payments. Additionally, undocumented nannies who meet the substantial-presence test and are citizens of Mexico or Canada may claim dependency exemptions in the same way that U.S. citizens use to determine who is a dependent (See Publication 519, P. 25).

Other Resources:

Undocumented Workers Eligible to File Unpaid Wage Claims

Q & A: The Undocumented Nanny and Immigration Reform

Expiration of ITINs

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