Between 80 and 95 percent of people who employ nannies, babysitters, and housekeepers don’t pay employer taxes for these employees, says a recent New York Times article. At first I was surprised and then, embarrassingly realized that we’d been guilty of this ourselves at one point. (I guess I should list my phone number here so that IRS has a convenient way of reaching us after reading this.)
This is a fairly high “cheat” rate, but as I read the article I, along with the article’s author, was shocked at the endless bureaucratic steps that families have to go through to actually do the right thing. They are truly endless and extremely time consuming and as I think about the hectic daily schedules working families are juggling, no wonder many are choosing to not go through this mess. There are eight steps involved and some of the steps have many mini-steps as part of them.
Of course, there are very good reasons to pay the nanny tax. If your nanny (or housekeeper) files for unemployment after she stops working for you, for whatever reasons, and names you as her last employer, unpleasant things will happen and you may spend a lot of time with folks from the IRS. If you decide to run for public office, not paying employer taxes for your housekeeper or nanny will certainly get you in trouble, just ask Caroline Kennedy or Tim Geithner. If you do put your nanny on the books you can use the Flexible Spending Account, through your employer, to pay her for up to $5,000, and this is money that comes out pre-tax from your salary. And, as the article points out, paying the nanny thing is just the right thing to do.
I was going to ask you to share whether you pay or paid the nanny tax or not, but that’s probably asking for too much information. So instead I’ll ask what you think about this — are you surprised the “cheat” rate is so high? Or does the insanely time-consuming process of actually doing what the IRS want you to do enough of a deterrent for a busy working family?