The Ethical Nanny Diaries
After staying home with my little guy for a little over a year, I’m about to start working part-time. After exploring all the childcare options, we’ve decided to hire a part-time sitter/nanny to care for him in our home. But my husband and I are having a difference of opinion about one thing: He wants to pay her under the table, while that kind of arrangement makes me nervous. Granted, we’ve always paid our nights and weekend sitters cash the handful of times we’ve used them, and he doesn’t see the point in doing anything different for a part-time, non-live-in sitter during the day. And while I don’t really know all the legal ins and outs, I feel like 20 hours a week is enough to require us to pay taxes and/or get us into trouble if we were ever to get audited. Am I right?
My sister (the only other person I know who ever employed a nanny) agrees with my husband, but admitted her reasons for not paying taxes was more all the paperwork was a big, scary pain. She also said that most nannies WANT to work under the table and we’d have a harder time hiring the right person.
But still. It feels shady to me, like sending my son to an unlicensed day care or something! Am I making a big deal over nothing or can you point me in the direction of easy-to-understand resources on what’s required of us?
Just sign me,
Last Ethicist Standing
Sorry, Husband and Sister! But you’re both in the wrong here. While it’s true that m0re and more families are skipping the nanny taxes, the whole “everybody does it” excuse isn’t going to save your butt if the IRS decides to notice.
Sittercity has the best, easiest-to-understand resource on nanny taxes I’ve come across. For your husband, who thinks part-time nannies are somehow exempt:
If you pay your nanny more than $7,000 in 2011, you must withhold and pay Social Security and Medicare on all her wages over $1,700.
If you paid your nanny $1,000 or more a quarter in 2011, you must pay the federal unemployment tax, or FUTA. (You may also owe state unemployment taxes.)
Let’s say you pay your nanny $12 an hour for 20 hours a week, 50 weeks a year with two weeks off and…yep. That’s 12,000 very taxable dollars a year.
The only nanny arrangements that DON’T require paying taxes are ones involving a spouse, parent or your own child under the age of 21. If they’re watching your child, you’re golden. But once you hire someone, you must declare them on your taxes, and there’s just no legal wiggle room to debate. If you pay under the table, you are coloring outside of the lines and potentially exposing your family to a lot of liability down the road. (Not to mention you could unintentionally be aiding your nanny in some shady double-dipping behavior, like drawing unemployment benefits from a previous legal job while also collecting paychecks from you.)
As for your sister’s argument that nannies want to be paid under the table and you won’t attract as many candidates? Eh. There are actually many reasons why a good, professional nanny would WANT to be employed legally. Yes, having taxes and Medicare withheld from hourly earnings sucks, but so does unemployment. Or trying to procure an apartment or car loan without an actual employment history. Or retiring without any Social Security. Put “no under the table arrangements, please” on your ad and if people balk at that, well, maybe they weren’t necessarily the right candidate for you anyway.
The Sittercity page I linked to goes into all the details of what you need to do once you do decide to follow the tax rules. If you guys ever get help preparing your taxes, your adviser can absolutely help you with this task, too. And if you or your husband are offered Flexible Spending Accounts through YOUR employers, you can use those to squirrel away pre-tax income to help pay your child care bills (there are also tax credits you may qualify for). Both are nice perks to keeping things above the table and legal, if removing the fear of the IRS breaking down your door and demanding thousands and thousands of dollars in back taxes isn’t enough.
Photo credit: ThinkstockPublished December 21, 2011. Last updated March 23, 2012.