Nannies: Why It Pays to be Paid Legally
Traditionally, babysitting — and even nannying — has been an “under the table” industry when it comes to compensation. We’ve got an article coming out soon about nannies and taxes, but here’s the gist of it and why it’s important to keep it all legal.
Under federal law, nannies are considered “household employees, which means that for nannies who are paid $1,500 or more annually, social security and Medicare should be withheld and paid. For nannies who make more than $1,000 in a calendar quarter, the employer must also pay federal unemployment taxes.
There’s more to it than that from an employer perspective, but don’t worry! We’ll explain all of it in depth in our library article, including how to withhold and what forms you need.
But WHY should nannies insist on being paid legally, aside from the fact that it’s, well, the law?
Reason 1: Employment History
A legitimate employment history is required for a car loan, a mortgage, a student loan, a credit card application, a health insurance application, an auto insurance application, future job applications, etc. So, if you earn $3,000/month under the table and you and your partner apply for a mortgage, the bank won’t count your income and you may not qualify for the loan.
Reason 2: Unemployment Insurance
Remember how the employer pays the federal unemployment tax? That’s because you are entitled to receive roughly 50% of your salary for up to six months if you lose your job due to no fault of your own. You’ll get a nice cushion if you lose your job and have to scramble to find another one.
Reason 3: Social Security and Medicare Benefits
While you contribute the required 7.65% of your wages into your retirement account with the Social Security Administration, your employer provides a dollar-for-dollar match. Without that nest egg building and earning compounded interest over time, you may find it impossible to quit working.
For more information, check out the IRS site about household employees:
http://www.irs.gov/publications/p926/ar02.html
August 15th, 2008 at 11:32 pm
I have many questions when it comes to my salary as a nanny. I am paid partly by check (weekly) by the family I work for. No taxes are taken out and they plan on giving me a 1099 at the end of the year. The other part of my salary is paid by the family’s employer and taxes ARE taken out since I filled out a w-4. How will I be paying back taxes at the end of the year? Is this going to hurt me in the long run concerning federal taxes, state taxes, social security, etc.?
August 20th, 2008 at 11:41 am
HOW MUCH MONEY SHOULD MY EMPLOYER BE TAKING OUT FOR TAXES?
August 20th, 2008 at 11:42 am
IT DEPENDS
August 23rd, 2008 at 1:31 am
I am a Nanny and I won’t accept a position unless taxes are being taken out. I make sure to put it in my profile or ad. When I do babysitting, it’s always under the table.
August 25th, 2008 at 11:49 am
All Nannies should get a W-2. I am actually in the middle of trying to resolve that issue with a past employer. The family said it would be under the table- I was with them for a year and all of a sudden they no longer wanted to do it under the table at the end of the year. I also had no issues with the family (went to b-days, holidays, etc.) I thought we were pretty close and had good communication. Well after not giving my SS number to her she sent me a 1099. I told her I would not do a 1099 and I needed a W-2. She would not send it to me… So I am now in the midst of trying to get that figured out. With the 1099 I owed over $1000.00 in taxes. The family I am now working for helped me and took my things to their tax attorney. They did them for me and now I only owed $200.00. But I am still waiting on the complete outcome and sad to say- but I never heard from that past family again. So make sure to get a W-2 or you will owe a lot. There is info on the irs website.
August 27th, 2008 at 10:17 am
I am just starting a babysitting job, 3 hours a day for 5 days a week and they are insisting on taking out the taxes? I thought it wasn’t necessary for a babysitter, only nannies. I’ve always been paid under-the-table and someone told me that by the new family taking out the taxes they can claim me and get money back. I don’t know how that works. What I’m wondering is if its normal for families to take tax out for babysitters, too?
August 27th, 2008 at 12:38 pm
August 30th, 2008 at 9:51 pm
I just posted an ad on sittercity and all that have responded request to be paid under the table. Not only that, most non citizens using this site have student visas and are not permited to work legally. It’s too bad since my job requires I follow our laws and there seems to be quality care out there. Needless to say that after paying to join I still have no sitter and school starts Tuesday.
September 4th, 2008 at 6:03 pm
There are state and local employment laws to be aware of, too. In San Francisco, ALL employers — even parents hiring a nanny — must give paid sick time. I think this is great b/c if my sitter is sick, I sure don’t want her getting my baby sick.
September 26th, 2008 at 12:21 am
I would like to say that I had a position with a family that was taking tax money out of my pay yet not reporting my employment to the government! I worked for this family for a solid year (13 hour days), basically raised their infant son for them, and was VERY flexible and loyal to them. I began to sense things were not right. I was being taken advantage of and lied to etc. so I gave them my 2 weeks notice. Shorlty after I left the position and submitted my w-2 form and paperwork to the IRS I was notified by my accountant that my papers had been rejected and mailed back. Eventually I got my tax return; about 2.5 months late. At the time I was just about to get married and my fiance was in school grad full-time year round. The family knew of my personal/finacial situation and disregarded it completely. It sickened me especially since my former employers were both working in the law field as attorneys and mentioned on numerous occasions that my employment meant a tax deduction for them. I took my job seriously and was somewhat blindsided in return. I am now VERY concerned with nanny taxes. It is a shame that one family had to ruin this experience for me but from what I went through I STRONGLY caution nannies/potential nannies to pay attention and get all copies of all of your pay checks etc. if your family insists on having a payroll and “reporting” taxes in case you run into a situation like I did.