What to Do If Your Employer Won't Pay Taxes

woman filling out tax forms

As a caregiver, you know you’re considered a household employee, not an independent contractor, so when your new family tells you they’d rather not pay taxes, you’re a taken aback. In this wink-wink situation, many families think they’re helping out their nanny by letting her bring home a little extra money, and they don’t even realize it’s illegal to do so.

“Tax season is a common time for household employees to have the ‘nanny tax’ conversation with their employer,” says Stephanie Breedlove, VP of Care.com HomePay. “In reality, the best time to approach this topic is before you are hired, or as soon as you discover you should be having taxes withheld.”

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

But what do you do if your employer just isn’t interested in paying taxes? What's your next step?

  1. Have a 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, a lawyer and founder of Mom, Esq. “I always advise clients to be matter of fact and to avoid placing blame or becoming too emotional.”

    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 cash and you want to get on the right track. Many families want to do the right thing; they just don’t always know how.

  2. Explain the Harm
    Your employer might think it’s helpful to pay you under the table. If your paycheck is bigger and they don’t have to deal with paying household employer taxes, where’s the harm? But you know it’s illegal and you’re actually losing out on benefits like earning Social Security and Medicare when you retire, not to mention needing a traceable earnings history for loan applications. “I typically suggest that employees cite to the law, and ask for what it is that they are entitled to,” says Weinberger.

    You can even share these 7 Reasons NOT to Get Paid in Cash.

  3. Show Them What to Do
    If you have a talk and are prepared with what needs to be done, your employer might understand the process isn’t too hard. Refer to How to Start Paying Your Caregiver Over the Table to find out what forms need to be filed and when to get help.

    Even if you’ve been paid under the table for a while, the problem is fixable. If you’re 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.

  4. File the Right Form
    If your employer is against paying taxes, protect yourself by filing a Form 4852, a substitute form for a Form W-2 wage and tax statement. Because you’re required to report any income earned, this form offers you legal protection from charges of tax evasion.

    Unfortunately, the form requires you to identify your employers and might trigger a federal and possibly a state audit, as it becomes clear that taxes were not paid. This is why it's best to work things out with your employers first.

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

  5. Fulfill Your Responsibilities
    If you file a Form 4852, you'll still have to pay your share of federal and state income taxes for that year, and you could strain your employee/employer relationship.

    “It’s a tricky situation to be in, but you have to look out for yourself because reporting your income is the law,” says Breedlove. And if that means moving on to a new job, you might have to do that too.

    Filing taxes is essential because you begin to develop a good rapport with the government, one that shows you're following the law. If for some reason, you get your W-2 after filing the Form 4852 and the numbers are different, you’ll need to file Form 1040X, an amended U.S. individual income tax return.

    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.

Julia Quinn-Szcesuil is an award-winning freelance writer and a mom to two girls. She lives in Massachusetts and has written for local and national publications.

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.

For more tips and advice, check out these Nanny Tax Articles.

14 Comments

Join the conversation

Comment
Photo of Shakhnoza A.

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
Placeholder image

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
Placeholder image

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
Placeholder image

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
Photo of Tom B.

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
Photo of Cecile F.

Cecile F.

This is very helpful. What if i am not employed through care.com could you still help me?
November 04, 2014 at 9:04 AM
Photo of Tom B.

Tom B.

Hello Sherry. I'm Tom Breedlove, Director of Care.com HomePay and I can help answer your question. While you can still work after you retire, you should still have taxes withheld. The Social Security Administration has specific rules on this based on your retirement situation. I would suggest visiting (http://www.ssa.gov/retire2/whileworking.htm) to determine what your next course of action should be.
November 03, 2014 at 3:11 PM
Photo of Sherry P.

Sherry P.

What if ,you are retired and 69 years old? How much tax would I have to pay then if you are paid under the table? How can I find out?
November 01, 2014 at 1:06 PM
Photo of Dolores E.

Dolores E.

Thank you for that information ,I know its important to pay taxes .because I worked at hotels and others places .but now that am working for a family. I will have to look in to that.
July 25, 2014 at 1:17 PM
Photo of Stephanie B.

Stephanie B.

Hi Susan! It's not uncommon for tax preparers to be unfamiliar with household payroll and tax rules because it's such a small portion of the tax code. The IRS says if the family pays you $1,900 or more in a calendar year, they need to withhold taxes from your pay and pay their share of employer taxes. The only taxes you can choose to pay are income taxes, but I wouldn't recommend that as it's easier to just have them withheld.
July 10, 2014 at 2:53 PM
Photo of Susan L.

Susan L.

Help! As a retired senior, I babysit part-time and I was worried about whether or not I have to pay taxes and if so, how much? Even H&R block do not know for sure! Where can I find out??? Thanks
July 10, 2014 at 9:46 AM
Photo of Stephanie B.

Stephanie B.

Hi Carmen! I'm Stephanie Breedlove with Care.com HomePay and I'll be happy to answer your question. Social Security taxes help you in the long-term because at the end of each year, your employer submits information to the Social Security Administration (SSA) telling them how much they paid you and how much in taxes was withheld from you. The SSA then gives you credit for the Social Security and Medicare taxes PLUS the Social Security and Medicare taxes paid by your employer and keeps track of these during your working lifetime. When it's time for you to retire, the SSA will determine how much Social Security income and Medicare benefits you'll receive based on how much you paid in taxes over time. It is estimated that for every $1 in Social Security & Medicare taxes you have withheld, you'll receive roughly $5 back in benefits. That's why it's so important to be paid on the books if you work as a household employee.
July 08, 2014 at 3:19 PM
Photo of Carmen O.

Carmen O.

Really!!! I didn't know that, when I was out of work, I just didn't have any income, but how does the social security help you?
July 08, 2014 at 1:47 PM
Placeholder image

Elena M.

Is good to pay Tax because went you lose your job the social security will Help you ! Whit some income while You looking for a new job.
July 08, 2014 at 11:15 AM

Leave a comment

You can post a comment by logging in to your Care.com account or continue as a guest below.