Why Should I Pay the “Nannies Tax” and not Just Pay Under the Table?

One of the most obvious reasons for paying the “nannies tax” is to relieve yourself of liability. It is impossible to know whether you may let your employee go at some point and she will want to apply for Unemployment, or Disability. Should either of those occur, your failure to withhold and pay taxes may be discovered.  Should your relationship sour, and sometimes they do, your nanny can report you to the IRS.

Your nanny may want to be paid under the table as well, thinking this is to her advantage. While this may provide a temporary higher income or Medicaid benefits for her children, it will work to her disadvantage in other ways. The biggest disadvantage is that she is not paying into Social Security and will not reap the benefits of Social Security upon retirement. Your nanny may have difficulty getting credit since she cannot prove her income.  Should she become disabled, and require the assistance of State Disability or Workers Compensation, she will be unable to document her income without turning you in. And of course, she could get caught by the IRS.

Also, by paying legally, you can take advantage of any Dependent Care Flexible Spending Account that your employer may offer and also receive a Child Care Deduction from the IRS on your yearly income taxes.

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