Nanny payroll services are convenient and essential for many families. If your family utilizes nanny services, it’s important to understand nanny payroll and taxes. Some families wonder why they should bother involving the government at all, but it’s essential to learn why paying nanny taxes is both necessary and beneficial. You can simplify nanny payroll and tax by enlisting the help of a professional household payroll service.
Do I Have to Pay Taxes for My Nanny?
Anyone who works in or around your home, not through an independent contractor, is your household employee. This includes housekeepers, senior care workers, gardeners and nannies. Nannies and other household employees have to report their incomes and pay taxes like anyone else. Failing to do so can result in criminal and civil penalties. The Internal Revenue Service (IRS) requires you, as the employer, to pay or withhold Social Security and Medicare taxes from your household employee wages.
Risks of Paying a Nanny Under the Table
Paying your nanny “under the table” may save you both money, however, it’s illegal. The employing family and the nanny could face civil and criminal penalties. The employing family may receive criminal tax fraud charges. These charges are usually dropped when the IRS receives the nanny taxes. At that point, penalties and interest can increase the amount owed significantly. If the IRS pursues criminal penalties, the family risks a felony charge and possible jail time. Tax fraud is a serious offense with real consequences.
What Happens if I Don’t Pay Nanny Taxes?
Believe it or not, it’s not hard to get caught for unpaid nanny taxes. While there are high-profile examples of political appointees whose unpaid taxes came to light in background investigations, all it really takes is an employee filing an unemployment claim. The state finds no record of employment taxes paid for that employee, then sends an audit letter to the employer looking for tax filings. These late filings can carry stiff penalties, especially if you were required to carry workers compensation insurance but failed to do so.
Ask any nanny or senior caregiver, and they will tell you that every job eventually ends. When a family unexpectedly moves, or an aging client passes away, these employees often rely upon unemployment benefits to get them through to the next job. It’s all too easy for an innocent action by an employee to trigger big fines for a former employer.
Benefits of Paying Nanny Tax
Many overlook the benefits of paying nanny tax. In reality, it benefits both the household and the nanny in the short term and long term to pay these taxes. Learn how nanny taxes are positive for you and your nanny below.
How Does My Nanny Benefit From Nanny Taxes?
Nannies benefit from your compliance with nanny taxes in many ways. First, your nanny will have the legal rights and claims of an employee. If a nanny paid under the table is missing wages, they have no way to claim those wages without exposing illegal activity. Legal employment history can help them secure opportunities in the future as well.
It’s also important to have a verifiable income. With a verifiable income, your nanny can have a much easier time finding housing, applying for loans and mortgages and signing contracts. A lack of verifiable income can make these tasks challenging or even impossible. Paying nanny taxes benefits your nanny in other ways, as well. They’ll accumulate rightful credits to Social Security and Medicare and qualify for in-state tuition rates at local schools.
Your nanny will also qualify for unemployment benefits and refundable tax credits.
How Do I Benefit From Nanny Taxes?
Complying with nanny taxes can help you foster a more positive and professional relationship with your nanny. You’re likely to have a longer-term and higher-quality relationship with a nanny if you comply with the laws. They’ll be more inclined to stay under your employment longer, which can save you future time and effort. You’re also likely to find a more professional nanny — most well-qualified nannies will not accept under-the-table payment.
Paying nanny taxes serves the family in more tangible ways, as well, like qualifying for child care tax breaks such as a Dependent Care Flexible Savings Account (FSA) provided by your employer. The family can also obtain workers’ compensation insurance as financial protection in the event of an accident. Above all, the family will not risk tax-fraud-related civil or criminal penalties, which can have monumental impacts on financial stability.
Why Outsource Nanny Payroll?
If your family employs nanny services, you should consider outsourcing nanny payroll. Leaving the task in expert hands has many benefits for your family and nanny, including:
Saves time and effort: Household employee laws are complicated and ever-evolving. It takes a great deal of time and effort to develop a thorough understanding of these laws. Outsourcing nanny payroll saves you significant stress and time commitment, so you can focus on other priorities.
Minimizes risk: Because these laws are complicated and nuanced, a non-professional is more likely to make mistakes. These mistakes may have financial or legal consequences for your family or nanny. Outsourcing nanny payroll minimizes this risk. Household labor experts understand the fine details of these laws and can clarify any points of confusion.
Allows for automatic payment: You can save yourself time and effort by setting up automatic payments through a third-party organization. Ensuring your nanny always receives prompt payment will help you cultivate a positive relationship and reduce the risk of any animosity.
Choose HomeWork Solutions for Nanny Payroll and Taxes
Consider the benefits of paying your nanny on the books and the risks of not doing so. Complying with the law will cultivate a professional, positive and long-lasting relationship with your nanny. It’ll also protect both you and your nanny from serious legal consequences. It’s helpful to outsource nanny payroll and tax services to save time and effort, minimize risk and contribute to your professionalism as an employer.
At HomeWork Solutions, we specialize in household payroll and taxes, so you can know you’re getting dependable service. We’ll take care of all labor and tax compliance issues so you can focus on other aspects of life. To learn more about HomeWork Solutions services, contact us today.