Although household employment tax laws certainly add an additional expense to your childcare budget, you really can’t afford not to comply with the law.
Although some nannies may even ask to be paid “under the table”, a family that agrees to such an arrangement is taking significant legal and financial risks.
In the event of an audit, you, as the household employer, will be ultimately responsible for all FICA and other employment taxes that are owed to the government on the nanny’s wages, even if you did not withhold the nanny’s share because you had been paying her “under the table”. IRS audit rates continue to increase, particularly for higher income taxpayers, so it is the family – not the nanny – that is assuming most of the financial risk of such an employment relationship. Moreover, if you are employed by the government or in a professional capacity, your avoidance of your household employment tax obligations could put your job or career in jeopardy.
Remember, although you may think you have a good relationship with your nanny and that your employee will never “turn you in”, realize that this employment relationship will eventually end, and perhaps not on good terms. Even if you and your nanny do part on good terms, many times the first place a recently unemployed nanny will turn is to the unemployment office, to file for benefits, at which point your “under the table” arrangement is likely to be exposed.