Our Be the Best Nanny Newsletter Facebook page has been swarming with questions about nanny taxes. We have published newsletter issues and dozens of articles about the benefits of being paid legally, yet an estimated 90% of nannies don't pay taxes.
After speaking to nannies about nanny taxes, the issue isn't that nannies don't want to be paid legally, it's that the parents that employ nannies don't want to bother with the time and expense of paying their domestic employees legally. Nannies tell me that they fear their employers will get mad at them or may even let-them-go if they insist to be paid on-the-books.
The most common questions nannies ask me are how to ask the parents to pay them legally and how to pay taxes if their employers don't want to do the paperwork. I have shared the links to articles by nanny tax expert Kathy Webb of 4nannytaxes.com about how nannies can pay taxes without a W-2 provided by their employer. Ms. Webb explains that nannies are employees that are responsible for reporting their wages and filing an income tax return and they can do this by completing Form 4852 Substitute Form W-2.
But, nannies who use the Form 4852 will need to provide both of the parents' names and address to the Internal Revenue Service (IRS). Doing this will get the parents in a heap of trouble with the IRS. Submitting the Form 4852 means the IRS will pursue the family for the unpaid Social Security and Medicare taxes. I don't see how any family would allow a nanny to keep working for them after getting the parents in a heap of trouble with the IRS.
Instead of blowing-the-whistle on their employers, great nannies should simply insist on being paid legally. During the interview is the best time to discuss being paid legally. Before the fist day of work is the time to fill out tax paperwork.
But, even if working nannies are not currently paid on-the-books they should ask the parents to change that arrangement. The best nannies make it difficult for parents to envision their households running without them. I recommend nannies go ahead and ask the parents to pay them legally because parents are more likely to pay their nanny's taxes than risk losing their great nanny to another job.
Click here to share a simple guide with the parents on how to pay their nanny legally.
Here are points to make when asking to be paid legally:
1. It's the law. Your employer is breaking the law by not being tax compliant. Doctors, attorneys, and accountants can lose their practices and licences if they do not pay their nanny on-the-books.
2. Tell your employer that you want to apply for a credit card, buy or lease a car, rent an apartment, or get a mortgage on a house. To do so you must prove you are working. You must pay taxes to prove you work.
3. You must be paid on-the-books to receive social security, unemployment insurance coverage, and an Earned Income Credit.
4. Paying taxes protects the parents in case you ever get hurt on the job. You must be paid legally to be eligible for Medicare benefits, disability benefits, or workers' compensation.
5. If your employer pays you legally they will be able to take advantage of their flexible-spending plan and deduct your salary as a qualifying expense.
6. Your employer has to report your wages and the taxes they withhold for you on their personal income tax return or be liable for hefty penalties.
7. The only difference between working as a legal American citizen rather than an illegal immigrant is that American tax payers are protected by the system with Social Security, unemployment benefits, Medicare, disability, and workers compensation.
8. Feel free to ask your nanny agency staff or any nanny tax company employee to talk with your employer about both the risks of not paying their employee legally and the benefits of tax compliance.
Tip: Using a nanny payroll service makes the process of paying nanny taxes simple for parents. We recommend contacting Kathy Webb or any of her staff at 4nannytaxes.com with your nanny tax questions.
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