What Can Happen If You Don't Pay Your Nanny Legally 🚓 - YouTube

Hey everyone, Laura here  from Nanny Parent Connection. 

Found a new little nook inside my home to  set up a little desk space so i thought I  

would try this out for the latest video. Today I'm going to talk to you about what  

can go wrong if you don't pay your nanny legally. So, if you're going to bring in some household  

help, you definitely need to think about a  plan and how you're going to pay your nanny.

There are two ways to pay your nanny. You can  pay legally Above The Table or you can pay  

Under The Table, which is kind of more casual  pay how you would pay maybe the neighborhood  

who comes over to break your lawn for example. If you're going to bring any sort of household  

help in, such as a Nanny and that care is going to  happen on an ongoing basis and you are directing  

how that care happens, the individual cannot  be paid as a 1099 independent contractor.

They have to be paid as a W2 employee. That means that they must be paid time  

and a half for any hours worked over 40 in  a week and you must as a household employer,  

pay for social security, medicare,  and workers compensation insurance.

So, how do you know when you  need to start paying these taxes?

For 2021 the IRS has set the threshold for when  you need to start paying those taxes at $2,300.

So, you can pay your care provider up to  twenty-three hundred dollars each year  

before you're responsible for paying those taxes.

They do change that amount every year so  every year you do wanna check and see how that  

threshold has changed, if it has gone up which it  typically does or it has gone down for no reason.

The term payment Under The Table is a very  common topic but it's important to note that  

it's also synonymous with tax evasion, if you  are going over that $2,300 per year threshold.  

And tax evasion of course, as we all know has some really  

serious consequences for both  the employer and the employee.

It's estimated based on some recent studies  that only about 250000 households in the us  

is reporting household wages, and according  to The IRS, schedule h filings have actually  

declined even though the bureau of labor  standards is reporting that home care  

and home aid workers are actually increasing. So,  those kinds of workers are getting more popular. 

A recent survey of domestic employees  was done that showed that fewer than 9%  

of them actually worked for  employers who paid social security.  

It's also estimated that 75% to 95%  of people who employ domestic workers,  

such as nannies don't pay payroll taxes. So, they're paying under the table,  

opening themselves up to a lot of  liability if they ever get caught.

So, paying under the table.

Well, there is definitely a cost-saving,  you know if you're not paying the payroll  

taxes which end up being about  10% of the nanny's gross pay. 

It actually has some more  downsides than upsides to it. 

So, I'm going to talk about  a few of those right now.

For the employee not being paid legally  means they won't have access to worker's  

compensation insurance, they won't  have access to any disability benefits  

and they won't have unemployment  insurance, medicare, or social security.

These benefits are really  important later on in life. 

So, that means that could impact their future,  that could impact their retirement, it also can  

impact financial stability for their families. For example, if the worker is injured on the job,  

they could potentially be missing out on benefits  that not only would offer protection for them but  

also potentially for their children or their  spouses. Another thing that the worker is  

going to miss out on is that they're going to lack  access to certain loans and rental opportunities.

If they don't officially have those pay stubs that  one would get from being paid over the table or  

being paid legally, they're not going to have that  employment history that they may need to provide  

proof of if they're going to go try and rent an  apartment or if they're going to go buy a car  

or if they're going to get some other type of  loan or maybe even go to buy to the first house.

So, that's something really important to consider.

It's important to know that even though  the employer is responsible for some of  

these taxes of course, that there are  some tax benefits available at tax time.

So, for example, the child independent  care tax credit is available,  

also it's possible that some employers  might be able to get benefits such as  

a flexible spending account through  their own employer, through their work.

So it's important you know check-in with  your own HR, you might be able to access  

some of those pre-tax dollars and set  some aside for child care expenses. 

So, you may wonder how in the world  would I get caught paying my nanny  

or household employee under the table if  I'm good with it and they're good with it! 

Because of course, if I'm paying my nanny  in cash they're gonna be making more money  

off the top right? So, they're happy, I'm happy,  I'm saving money so win-win right? Not so fast!

There are a few things you should think  more into before you make this choice. 

So, if you don't file your share  of social security medicare  

and unemployment taxes but the employee files  their income taxes, that can flag the IRS. 

If you let your nanny go, they  can file for unemployment. 

In doing so, they're required to give  a list of all their former employers,  

the unemployment office can investigate  and the nanny won't get any benefits.  

And, here's an example of a situation that  I just heard personally from a family,  

where their nanny was at work and they got injured  on the job, the nanny went to the ER but because  

the nanny wasn't being paid legally by the family,  they didn't have access to workers' comp insurance. 

And unfortunately, this leaves both the nanny and  the family in a really tough spot, because the  

nanny doesn't have any access to benefits through  worker's compensation or labor in industries  

and it could potentially open up the  family to some legal liability there.

All right, sorry still with me?

Because now we're going to  finish up with what can happen  

if the nanny or the family  gets caught not paying taxes!

So first off, I do want to put  out this little disclaimer that  

I am not an attorney and this is not legal advice.

So first off, if you're a nanny you definitely  would be responsible for any back taxes and  

probably some penalties and fines. So, what are some of the consequences  

for the household employer the  family of not paying legally?

You could be responsible, you could hold  all of the liability for both your own  

portion as well as the employee's  portion of paying the back taxes. 

You could be hit with penalties and  fines for not paying those back taxes  

and you could be responsible for  interest charges that go along with that. 

You could also be hit with criminal charges  which may include jail time for tax evasion,  

and if you hold any professional licensures may  be a physician or a dentist you could lose those.

It's important to know that there's no  statute of limitations on tax evasion. 

So, 20 years after you employ a nanny you could  still have the IRS come knocking on your door  

to collect those back taxes and I don't know what  interest would be on 20-year-old nanny back taxes.

But, I'm assuming it would be a really large  number. So, as you can see the pros of paying  

your nanny legally far outweigh the cons,  nobody wants to land in jail over nanny pay.

It's quick and easy to set up via a  payroll company or with a little bit  

of late work if you have the time to  invest in doing the payroll yourself.

If you would like to hire a nanny payroll service,  

we have partnered with a great nanny payroll  service and the link is in the description,  

check them out! They're fantastic and  they work all across the united states. 

So, no matter where you're at, they can help you  get set up and be sure that you're paying your  

nanny legally and you're not going to be liable  for any back taxes. You'll be paying above the  

table, you won't have to worry about it one bit. All right guys, that's all we have for today  

on what can go wrong if you  don't pay your nanny illegally. 

I hope you learned a few things today and I  hope that I encourage you to at least consider  

weighing the options, you know weighing some  of the things that could potentially go wrong. 

Please like our videos and subscribe  to our channel, so that you can get  

updates to future videos. Please check  back in about two weeks for our next video!

BYE!