Thursday, March 22, 2012

Benefits of Being Paid On-The-Books

Although it is estimated that 80% to 90% of household employers are not tax compliant we highly recommend paying nannies legally. Yesterday, we listed the risks for parents that don't pay their nannies legally. Today, we are listing the benefits for household employees to be tax compliant. Click here for our review of the best tax software to use to complete your taxes.

The benefits for nannies that are paid on-the-books include:

A History of Salary and Employment: If you want to rent an apartment, lease or buy a car, apply for a credit card, or apply for a mortgage you need a record of employment to prove you make a salary.

Unemployment Benefits: If you lose your job through no fault of your own, you will be able to receive a portion of your salary if you are laid-off. This is an important benefit in a difficult economy.

Disability Benefits: If you have an illness or injury you can collect Disability Insurance while you are unable to work.

Workers Compensation: If you become sick or injured on the job Workers Compensation is an insurance plan to help pay for your medical care.

Social Security and Medicare: Once you meet a certain age requirement to retire the extra money can be a benefit. Medicare can help pay your medical expenses once you reach retirement age.

8 comments:

Sarah Marie said...

In my case, being paid on the books is actually more harmful than not. The state I live in has an extremely high tax rate, as does the city I live in, which has a wage tax. All told, I've already been taxed $1000 for the year 2012. I'll only make $20,000 a year net income, so I applied for and was rejected from receiving state healthcare and food stamps because of my husband's student status.

Arg! Despite my frustrations at having to pay so much for services I don't directly benefit from, I do believe in honesty and forthrightness, so *I* (not my employer) was the one to initially bring up the prospect of being paid by the books.

One more benefit you forgot to mention: if your employer utilizes a payroll service, you'll most likely have a direct deposit option, which saves a trip to the bank. :)

Anonymous said...

Thing is Sarah no one wants to pay taxes but its the law

Anonymous said...

I agree with you Sarah that sometimes looking at your pay and seeing all the taxes deducted can be a bummer, but the benefits listed above are huge. I am paid on the books by my employer. They use GTM, the company in the prior blog with the new 401k plan. As a legally paid employee we are able to get loans for school for ourselves or our children, homes, and cars because we can provide a proof of income. You will also be thankful if you are ever hurt on or of the job you can receive WC or Disability Benefits. Many nannies who are not paid on the books need to wait a very long time to see any benefits, if at all. The same goes for unemployment, which in a high turnover job such as being a nanny with children growing, families moving, and perhaps going to daycare it can take a while between jobs. The lessened take home pay is certainly inconvenient to everyone who pays taxes, especially if you cannot receive benefits you believe you should, but in the long run you really are making out better than the nanny pocketing her cash. It seems better to them at the moment, but later will only hurt them.

Anonymous said...

Sarah you are benefiting from the road you drive on and traffic lights, you are benefiting by clean water, police dept, garbage pick up, public schools, the list goes on and on. You may feel your taxes aren't helping but from helping to pay our military to your sewer system and even your county parks and local playgrounds you are benfiting from taxes in so so so many ways.

gra-nanny nanny said...

I have been a nanny for 26 years. This family I am working for now are great EXCEPT they pay me with a 1099. It took me 2 years to find a nanny job after we moved from a metropolitan area to a more rural area. Last year when I did my taxes, I gave them the 1099 he gave me. Of course the accountant told me the law, but I was doing the right thing. The family prefers to take their chances. On the other hand, by filing as an independent contractor I am writing off my cell phone, my mileage to work, any books and gifts I buy the children, any and all Nanny books, manuals etc. I still think it is better to have them pay - but at least I am trying to stay honest and pay my taxes. I have to pay a self-employment tax which is higher plus I have no unemployment insurance for when I am laid off. Which will be in June. I just don't understand why his own accountant doesn't warn him. My 1099 comes from the bookkeeper.

Maria said...

But you aren't doing the right thing gra-nanny, it's illegal. You are not an independent contractor. If you were fired and applied for unemployment both your employer and you would be fined at the very least. Contact Kathy Webb 4nannytaxes or Tom Breedlove of Breedlove & Associates and they would be happy to explain the issue with you. It's not the fight thing unfortunately you could get in a lot of trouble.

Maria said...

I'm pretty sure if the accountant is a CPA he can lose his license for providing them that info too. ?They screwed you because you can't apply for unemployment without screwing them. The parents will get fined for tax evasion and the accountant could lose his license. What a mess.

Anonymous said...

I'm a nanny and I did get audited. The family required that I be 1099'd at the beginning of my employment, and I didnt question it. (Prior to working for them all the other families paid me cash and I was just fine with that but I needed the job and agreed)Unfortunately I am now facing almost $4,000 in taxes and penalties/interest PER YEAR of employment. I was fine with this at first, I dont mind paying my fair share of taxes. So I contacted an accountant to try to see what options I had for deductions/write offs, etc. and he said the IRS is firm that all nannies need to be W2'd...we shall see if I still have a job after my employer sees that they're going to have to pay unexpected money for the past 3 years of employment.