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What may happen if I do not pay the nanny taxes?

What happens if I don’t pay for my nanny taxes? Failure to report wages paid to a domestic service worker – including a nanny, senior caregiver, housekeeper and more – and failure to pay the nanny taxes compromises the validity of your personal income tax return. These taxes are included on your personal federal income tax return, and you sign/submit this tax return under penalties of perjury. If you do not pay the nanny taxes, you commit tax fraud. If caught in an audit, this can be prosecuted as felony tax evasion.

Additionally, there is no statue of limitations on the failure to report and remit federal payroll taxes. You are most likely to be “caught” when a former household employee files for unemployment or social security benefits. A nanny or senior caregiver is typically only employed for a finite time, and when the job ends they are entitled to unemployment insurance benefits to tide them over as they search for a new job. Employers are generally required to pay back taxes, penalties and interest charges, and usually professional fees for an accountant and/or attorney.

At least 30 states have partnered with the federal government to target worker misclassification – the practice of avoiding payroll tax obligations by improperly treating the worker as an independent contractor. Virginia is the most recent state to enter into an agreement with the U.S. Department of Labor (“DOL”) to target misclassification (2017).

HomeWork Solutions can assist employers becoming current with back tax obligations.