The Top 11 Professions Most at Risk if Not Paying Nanny Taxes
If you pay a household employee more than $2,100 a year in cash, you should be paying taxes.
Although everyone stands to lose something by not filing nanny taxes correctly, certain professions are more at risk if errors are made or taxes are skipped all together.
Bernie Kerik, the former New York City Police Commissioner who was convicted of nanny tax fraud, suffered professional disgrace and the resulting public ridicule by failing to pay nanny taxes. As a top law enforcement boss, many wondered why he so flagrantly broke the law he was trusted to uphold.
"For me, everyone who hires a nanny has something to lose if they do not follow the law," said Tom Breedlove, Sr. Director of Care.com HomePay. "But those with professional licenses have extra issues as they could lose their livelihood as well as their professional license."
Although Kerik's case was very public, Breedlove assures that most people don't go to jail for not paying nanny taxes. But they can get tangled in a legal and financial mess.
Do people set out to commit tax fraud when they pay a nanny under the table? No, not most, says Breedlove. The majority just don't realize the tax and legal ramifications when forking over the cash. Paying a nanny without reporting the full income (or even doing it incorrectly) is considered felony tax evasion and can jeopardize your career. In the end, your nanny actually loses money because when she goes to collect retirement or even unemployment benefits, her income is underreported and she cannot claim money and benefits that should be hers.
The following list includes 11 careers that demand the utmost integrity by professionals who risk the earning potential that comes with loss of professional license or loss of public trust.
The rule is, if you live by the law at work, it's assumed you know to live by the law at home, too. And unfortunately, not paying taxes properly could strip you of your right to practice law.
The same rules for lawyers apply to judges, but judges have the added burden of evaluating others accused of wrongdoing. Even without a conviction, making the wrong choice in your own life casts doubt on how well you can do your job.
Your clients depend on you to know what to do with their own money and keep them out of tax trouble. If you are not paying taxes properly, they will not trust you with their own money.
If you are in the profession, it is assumed you are extra careful with money and taxes. If you are not, clients might not give you a second chance.
Certified Public Accountants
If you have any type of professional license, it could get revoked if you are convicted of tax evasion or conspiracy to commit tax fraud with another party (your nanny), which is a felony charge.
Sorry to sound like a parrot, but it's all about protecting that license! Even if there is no conviction, being charged with a felony can create huge professional headaches.
Doctors and Dentists
If convicted of tax fraud, guess what could get suspended? Your license. And for these professions, where patients put so much trust in your judgment, your reputation may suffer damage beyond repair.
Not only could a tax evasion charge put your license in jeopardy and a conviction take it away, if you have your own practice, it can also impact your other employees. They could be out of a job if the practice folds.
Maybe this is the most obvious one, but considering those who still get caught, maybe not. Politicians are subject to extra scrutiny because the public wants to know if they will act appropriately when representing the people who voted them into office.
Top Law Enforcement Officials
People in positions of prominence or public trust, said Breedlove, are vulnerable to extra scrutiny. One misstep could be a career-ender. "These professionals must be especially careful," said Breedlove.
In the highly competitive world of media jobs, those who report the news or who are media spokespeople need to have a clean background. For better or worse, rivals love to dig up questionable actions, especially those that could end a career. Paying your taxes keeps your life off the lead news.
How to Get Above Board
If you've had wages in the past that were paid under the table, the most honest and ethical thing to do is to file delinquent tax returns. The best thing, said Breedlove, is to try to make it right. Yes, you will end up paying back taxes, but many states will waive penalties if they know you are correcting your errors in good faith. And moving forward, check out our Nanny Tax Calculator to see your new pay rate and what a nanny's take-home pay would be (be sure to factor in your childcare tax breaks if you're eligible). Then learn what forms you will both need to fill out to get the process started.
Your Next Steps:
* The tax information contained in this article should not be used for any actual nanny relationship without the advice and guidance of a professional tax advisor who is familiar with all the relevant facts. The information contained herein is general in nature and is not intended as legal, tax or investment advice. Furthermore, the information contained herein may not be applicable to or suitable for your specific circumstances and may require consideration of other matters.
For more tips and advice, check out these Nanny Tax Articles.