While some families opt to pay under the table, paying legally was a no-brainer decision for Leslie, a hard-working executive and mother of two in the Boston area. She shares why:
In addition to making your nanny feel like the professional that they are, here are three more benefits to paying your nanny on the books.
1. Tax breaks often offset your payroll tax expenses
The employer taxes you take on when hiring a nanny probably won’t cost nearly as much as you think. In fact, child care tax breaks in 2024 can save you more than $2,000, offsetting most of your tax liability. The tax breaks include Dependent Care Accounts (also called flexible spending accounts) and the child care tax credit. If you have two or more children under the age of 13, you can use a combination of these tax breaks to save even more. For an estimate of your “nanny taxes” and your tax breaks, check out our free nanny tax calculator. Just keep in mind that you can’t utilize these tax breaks if you pay your nanny under the table.
2. Your nanny gains short and long-term protections and benefits
Paying your nanny on the books provides them with all the protections and benefits that other professionals enjoy (i.e. Social Security income, Medicare, unemployment benefits). It also enables them to build a credit history so they can qualify for a car loan or mortgage. These employee benefits are only available when you handle your nanny tax requirements correctly. Not only will you be doing a good thing for your employee, your willingness to provide professional compensation will likely create a better, longer-lasting employment relationship.
3. Financial protection for you and your family
Though it may seem easier or cheaper to pay under the table, the risks far outweigh the benefits. Even if you successfully avoid an IRS audit, labor law violations due to overtime disputes, failing to purchase workers’ compensation or not awarding mandated paid time off can be rather expensive and stressful. Penalties vary by state, but can potentially be thousands of dollars depending on the errors that are made. The point is, you’re better off never putting yourself in that situation. Show your caregiver that you care and respect their profession, all meanwhile giving yourself a peace of mind. Contact our HomePay specialists today to help you set up your household payroll.
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* The information contained in this article is general in nature, may not be applicable to your specific circumstances, and is not intended to be a substitute for or relied upon as personalized tax or legal advice.