Over or under the table: Why it pays to be paid legally as a nanny
One of the most common complaints among nannies is about pay. They love their jobs, but their nanny family wants to pay them under the table, meaning they do not want to pay taxes. While this can be appealing to the nanny as well, as more money comes in upfront, there are definite drawbacks to being paid under the table. First, understand that this is an employer / employee situation; it is the legal obligation of the family hiring you-the employer-to report your income, file and pay taxes. Likewise it is your obligation as an employee to do the same.
Being paid legally has its advantages. Specifically, being paid over the table lets you:
- Collect unemployment. If you’re paid legally, your employers have been paying into unemployment. Should you lose your job, through no fault of your own, you are eligible to collect unemployment.
- Establish a credit history. By being able to show proof of employment and wages, you’ll establish credit for buying a car, buying or renting a home, applying for a loan and more.
- File a proper tax return. By being paid on the books and negotiating which taxes will be withheld from your paycheck, you’ll have already paid into state and federal taxe, and be able to complete your taxes. This may even get you a refund! We suggest that you refer to a nanny tax experts for advice on withholding for the best tax advantages!
- Save for retirement. One of the best advantages is that, by being paid legally, both you and your employer are paying into Social Security. If you’re doing nothing else to save for your retirement, such as an IRA, savings account or other investments, at the very least, you will have contributed to your Social Security benefits.
- Be legal. As we noted above, while being paid off the books might be appealing in the short term because it results in more cash in hand at the end of the week, being paid legally is the right thing to do. It is the responsibility of both the family and the nanny to be on the same page, mutually agree upon the payment terms, and do the right thing.
Advice for the Employer
A word of caution to nanny families: consult with an expert. Your personal accountant may tell you he/she can do your nanny taxes, but we strongly recommend that you consult with a nanny tax expert when it comes to Household Employment Taxes. All too often an accountant will tell you the “right” way, only to end up costing the family thousands of dollars in back pay, additional taxes, and/or penalties. Also, do not let an accountant or anyone else tell you that a nanny can be classified as an Independent Contractor and issued a 1099 (more here). This will come back to haunt you and your pocketbook at tax time.
Kellie Geres served on the International Nanny Association (INA) board of directors for over 10 years in numerous positions, and in 1997, she was named INA Nanny of the Year. Kellie is the current president of the Domestic Estate Managers Association (DEMA) DC Chapter. She is also past president of Association of DC Area Nannies (ADCAN), the longest running nanny support group in the country. Kellie maintains several industry related blogs including www.nannygroups.com, www.NNRW.org and is part of the Development Team of Regarding Nannies, and a trusted advisor to SitterCycle.com. She is also the founder of NannyTrainings.com and owner and moderator of Nanny Island. With her 25+ years as a nanny / household manager, Kellie has spent the past 16 years working exclusively with divorced parents, and she has successfully transitioned to being a household manager / personal assistant to a busy family with two children in college, and Riley the dog, in the Washington, DC metro area.