The Benefits of Paying Your Nanny Legally – and The Risks If You Don’t
It’s no walk in the park being a household employer. After all, there are many different legal requirements to meet, including tax and insurance. This leaves parents feeling stressed out and overwhelmed, making paying their nanny “off the books” more and more appealing. While this decision may sound appealing, it can be a nightmare if you get caught. And even if you don’t get caught, you’ll be missing out on the many tax and legal advantages that paying legally boasts.
Here are just a few reasons to pay your nanny legally:
You can avoid paying penalties, interest and back taxes. If your nanny files for benefits she’s not permitted to like workers compensation and/ or unemployment, she can trigger a red flag with the IRS. If do get audited and you have been paying your nanny “under the table”, you could wind up owing hundreds or even thousands of dollars in fines, penalties and back taxes.
You can avoid paying claims of underpayment or non-payment. Each year, thousands of families are getting caught simply because they are not paying their nanny fairly according to the Fair Labor Standards Act. If you fail to pay your nanny for overtime, you may be required to pay back wages, interests and maybe even additional fees.
You can take advantage of Childcare Tax Credits. The government recognizes that families need to pay for childcare. As such, the government offers two options to help parents save money on their nanny costs. First, the flexible spending plan lets parents use their pre-tax dollars to pay their nanny; which can result in significant savings. Second, for those that don’t have access to a flexible spending plan, you can utilize the federal Childcare Tax Credit. This credit lets parents claim a credit equal to their nanny’s wages on their personal tax return.
You can lower your out-of-pocket nanny costs. When you pay your nanny legally, you are providing her with many benefits that are considered tax free. These benefits include college tuition, books, health insurance, cell phone bills, and even public transportation costs. By offering these benefits, you can lower your out-of-pocket costs associated with employing a nanny.
You become more attractive to potential nannies. By paying legally you appear more professional and trustworthy. Most quality nannies prefer to stay with one family for years, so they are looking to connect with trustworthy employers. If you choose to pay “under the table” you may wind up with unsavory nanny candidates; and that can be dangerous for you and your children.
While it may seem difficult at first, there are many benefits to paying your nanny legally. And contrary to popular belief, it’s more affordable than you may think. By designing your nanny’s salary and benefits around your income, you can reap the benefits and money saving tax credits designed for your situation.