What to do if your employer won't pay taxes

woman filling out tax forms

Updated

As a caregiver, you may be aware that you're considered a household employee, not an independent contractor. So when you interview with a new family that tells you they'd rather not pay taxes, you might be caught off guard. The family may think theyre helping you out by letting you bring home a little extra money, but what they may not realize is that its illegal to do so.

 

"Traditionally, people see these relationships as more informal and not employer/employee," says Dean Rocco, a partner with Wilson Elser. They dont pay taxes to skirt the law intentionally; they just dont know about the law.

 

But what do you do if your employer isnt interested in paying taxes? Follow these steps:

 

  1. Prepare to have a constructive conversation

"It is always helpful for a nanny to do some homework first so that she understands her rights before raising these issues with her employer," says Lisa Weinberger, an employment law attorney and founder of the Law Office of Lisa Pierson Weinberger. As employees of the families they work for, in-home caregivers have a right to the benefits associated with the payroll and tax process.

 

If you don't say anything, your employer might assume you're okay with being paid under the table. Even if you've talked about it in the past, talk about it again. Tell them you're uncomfortable with getting paid in this manner and want to get on the right track. "I always advise clients to be matter of fact and to avoid placing blame or becoming too emotional," adds Weinberger.

 

  1. Explain how being paid under the table affects you

As a household employee, it's illegal to not have taxes withheld from your pay and for the family to not pay taxes of their own. If either you or the family are audited by the IRS, it can lead to a financial headache that may take months to clear up. Additionally, here are some other negative consequences to mention:

  • You won't be eligible for unemployment benefits if the family lays you off because they haven't paid into the unemployment insurance pool.
  • You're losing out credits with the Social Security Administration that will help determine your Social Security and Medicare benefits when you retire.
  • You won't have a way to document your income, which is necessary for things like a car loan, a mortgage loan, an apartment rental and other lines of credit.

 

  1. Help the family understand what to do

If you are prepared with what needs to be done before having a conversation with the family, they might not feel overwhelmed with the process. Refer to our article on how to start paying your caregiver over the table to find out what forms need to be filed and where to get help.

 

Even if you've been paid under the table for a while, the problem is fixable. If you or the family are close to reaching an agreement and afraid of missing the April 15th deadline for filing your personal income taxes, you can file for an extension with the IRS.

 

  1. File your taxes with a substitute W-2 form if necessary

If your employer is against paying taxes, it does not absolve you of your responsibilities to file a personal income tax return. Instead, you can file a Form 4852, which is a substitute form for the Form W-2 the family should have provided you. Unfortunately, the form requires you to identify your employers and might trigger a federal (and possibly a state) audit because the IRS will know that the family didnt take care of their responsibilities as a household employer. This is why it's best to work things out with your employer first.

 

Read tips from the IRS on what to do if you are missing a W-2.

 

  1. Pay your share of taxes

If you have to file a Form 4852, you'll still have to pay your share of federal and state income taxes for that year. That could be difficult for you to estimate, so if for some reason, you get your W-2 after filing Form 4852 and the numbers are different, you may have to file Form 1040X to amend your income tax return. "It's a tricky situation to be in, but you have to look out for yourself because reporting your income is the law," says Tom Breedlove, Sr. Director of Care.com HomePay.

 

Taxes can be a sensitive subject, so it's important to talk about them early on when you're first interviewing for a job. Look for families who are open to paying legally and educate those who aren't aware of what's involved.

 

Your Next Steps:

 
* The information contained in this article should not be used for any actual caregiver relationship without the advice and guidance of a professional 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.

 

14 Comments

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Shakhnoza A.

Hello, I've been a domestic worker for a number of years. Recently, I have noticed a trend among American families. When they get to the point of discussing my rate and I express to them that I need my taxes withheld, they don't want to do that. I even agree to receive a lower pay rate so that the taxes they would pay would be at my expense. Taxes are important for me because I rely on Obamacare for my health insurance needs. I know not everybody like Obamacare, but that's the only viable choice for me and people like me at this time. I am legal in the US and have a green card. I have a clean driving record and background. When I mention these things to them, they don't even seem interested in knowing. All they care about is the lowest pay rate and want me to work more and more. Even after hiring, they come up with excuses and reasons to make me work more or reduce my hours. If I bring up any of these as a concern, they sound apologetic but don't do anything about it. My hard work, punctuality, attention to their needs and wants, my quality of work, all seem to be irrelevant. They are interested to interview at their homes only. They are not willing to meet half-way. When I offer to meet half-way, there is no answer or they refuse to interview. Cheap, cheaper, cheapest - this is all they care about. If I understand anything, in America cheapness is equal to low quality. More valuable things and services always cost more. One would think that well-to-do families who choose to hire domestic workers should understand these things. But all they want is to pay cheap as if saving a dollar or two on their home worker would amass them a fortune or make their lives richer. Another problem with such people is that I had to ask them to pay me on time. They frequently forget to pay me regularly. I feel bad that I have to ask for my earned money. Or, they bring their relatives such as elderly mothers. Then expect me to help them with minor things. I don't mind helping out once or twice. But this becomes their expectation later. I want to ask that care.com remind all employers on this web site that there are valid ethical and legal expectations from them, such as paying attention not only to money when hiring, paying taxes, contract, paying their employees on time, and to conduct themselves with respect to employees and their frequently unvoiced rights.
February 14, 2016 at 4:23 PM
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jessy

How would i go about filing taxes if i work for different families and not just one?
December 29, 2015 at 2:01 PM
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Bethany

I have worked for a company (january-march18 2015)I had made 1,000-+ a month. I had asked the company owner many times to report my earnings, however, he never did. I sent all of the money earned to my bank, so I have all the earnings recorded. I do want to report my earnings, I believe in following the law. My one question about the form that I have to fill out about my income is do I wait till tax season (Feb 2016) to fill it out?
March 19, 2015 at 5:47 PM
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Delmi G.

Thank you, this information is gonna help us to know what to do.it is important that every one pay taxes.
February 11, 2015 at 2:14 PM
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Tom B.

Hey Cecile. The HomePay service is available to any family, regardless of whether they hire someone through Care.com. Please let the family you work for know they can contact us at (888) 273-3356 Monday through Friday from 8am to 6pm CST and we'll be happy to get them set up.
November 04, 2014 at 12:50 PM

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