Household employers and the ‘nanny tax’

It’s been 20 years now since two successive nominees for the prestigious position of U.S. attorney general had to withdraw due to “nanny tax” problems. Two decades is of course a considerable chunk of time. And yet the complexities of tax law for household employers continue to remain a challenge.

Families who employ childcare workers, housekeepers or other employees often don’t think of themselves as having an official payroll. Indeed, domestic workers may even request to be paid unofficially – in cash.

Household employers must be aware, however, that their responsibilities may even go beyond providing an official paycheck. If a household worker was paid more than a certain income threshold, there may be an obligation for the employer to withhold taxes.

Overall, in Texas and across the country, the level of compliance with these tax arrangements is not high. Most household employers are probably not in compliance. Indeed, some estimates put the noncompliance figure at as high as 95 percent.

A lot of people are affected. According to one estimate, the number of people who work for households as nannies, housekeepers or in other jobs is between 5 and 10 million.

To be sure, household employee status does not apply to contractors who are hired to do specific jobs, such as mowing the lawn. But if the household employer controls which days the worker is assigned to be on duty, and for how long, that control indicates the worker may be an employee, not a contractor.

In short, the nanny tax laws remain quite complex. But it is worth becoming informed about them, for multiple reasons. Treating employees fairly and avoiding possible tax penalties are important, whether you are nominated for attorney general or not.

Source: “Many household workers aren’t paid legally,” Pittsburgh Post-Gazette, Tim Grant, 2-19-13

Our firm handles situations similar to this post in Texas. To learn more about our practice, please visit our tax evasion page.