Nanny Tax Compliance: Why a Nanny Wants to be Paid Legally
In the “nanny world,” the temptation to accept a job that pays CASH (off the books, no payroll or income tax reporting) is faced by every nanny. After all, who LIKES to pay taxes? Professional nannies, however, understand nanny tax compliance and know that being paid legally is ultimately in their own best interest. Continue reading to learn more about how to pay a nanny legally.
Unemployment Benefits: Nanny jobs are, by their nature, not permanent positions. The children will grow and move on to school. The family’s child care needs change dramatically from full time, to part time, to after school and before school only. A parent may lose a job, the family may move out of state, or a parent may just change his/her mind and decide to stay home to care for their children. The full time nanny typically will have to move on every few years. The experienced, professional nanny knows that short term unemployment benefits are a life saver to bridge the time, planned or unplanned, between jobs.
Verifiable Income: Whether you want to buy a home, rent an apartment, purchase a car, or just qualify for a cell phone plan, at some time or the other you will need to have verifiable income. Verifiable income means you can prove to the bank, loan officer, landlord, or retailer that you have a record of consistent income sufficient to meet your proposed financial obligations – either pay check stubs, direct deposit advices, bank statements witnessing the deposit of regular pay, and/or tax returns.
||Workers’ Compensation Coverage: Any nanny can suffer an on the job injury that will require medical care (and cost), an injury that can keep her out of work either temporarily or permanently. Your employer may obtain workers’ compensation insurance – insurance that would cover those medical bills and lost wages – if you are being paid legally and your income is on the books. If you are not being paid legally your only option if you suffer an injury is to sue your employer – a costly and time consuming proposition.Social Security and Medicare benefits: Eventually you will retire and need retirement income. If you did not pay into the system you will not qualify for future benefits.
Earned Income Tax Credit: This is a refundable tax credit available to certain low income taxpayers with dependents. Many low wage earners qualify for a federal tax refund, even if they had no tax due or deducted. A single nanny with two children earning less than $38K per year could qualify for a maximum $4,824 per year EITC credit! (2008) When you qualify for the Federal EITC, you may qualify for a state credit too. Twenty-two states, the District of Columbia , New York City , and Montgomery County , Maryland , offer their residents an earned income tax credit.
It’s the law – tax evasion is a crime. You will sleep better knowing this is being taken care of.
Other helpful information:
» 10 Tips: Set Up Nanny Payroll
» 10 Tips: Hire the Best Nanny
» 10 Common Nanny Hiring Mistakes
» 10 Tips: Writing the Nanny Work Agreement