More Tax Trauma

Received Tuesday, August 3, 2010
perspective and opinion I have a question I'd like other nannies' opinions on. I'm looking for another job and really want to get paid on the books. Most families and nannies around here prefer cash. I'm wondering how it would work if I worked for cash and reported it anyway, like other nannies have said they do. For nannies who have done this, what I want to know is: 1) How did you declare it on your 1040? Just wrote in the amount on the "wages and salary" line without any supporting W2 or anything else? 2) What, if anything, did you do about paying into Medicare, Social Security, state disability and other things that normally come out of any employee's check? Did you figure out a way to do that or did you just pay federal and maybe state income tax and leave it at that? Also, please don't mention that I ask for a 1099. According to the IRS, FT nannies are employees, not independent contractors. Plus, there's no way I'm going to pay the extra self employment tax when my employer should be doing things right all along. Please help!

Thanks for the ISYN help,


missy said...

Funny, my husband and I are having the opposite problem. We are offering a very good salary that even with taxes etc is still a very standard middle income salary. We've had countless number of people ask about being paid in cash. I have no problem paying cash for over 40 hours or something, but not the entire salary. OP where do you live? Ha maybe it is fate.

Bostonnanny said...

If you go to the IRS website they can send you a packet a for household employees that breaks down the entire process.

Your employer needs to get you a ein employee identification pin and you need to fill out a w2 and have copies.
Your employer will withhold everything or just your Medicare and social security. They can deposit taxes bimonthly or at the end of the year. You may be responsible for your share of the fed/state.

I would say your best bet is to go through a payroll company because it can get confusing.

tea for two said...

If reporting your income is so important to you (as it should be!) I think you're better off finding a family who feels the same way. Otherwise, there's just going to be tension from the start. That being said, it can't hurt to take Bostonnanny's suggestion and be prepared with a basic understanding of how the process works. Then if you are interviewing with a family who is on the fence about it, you might be able to convince them.

nycmom said...

There is no way to do this and continue employment with the same family. As soon as you report the income, with their name/address, they will get investigated. They will likely then terminate your employment.

The only way to do it and remain employed is what many nannies in nyc working toward legal status do. They report income as housekeeping self-employment income from various households, without identifying any one employer. Yes, you are then liable for the self-employment taxes which are higher. But most only declare a small portion ($10K ish) and don't have to pay high taxes, but still build quarters and work history for future SS and immigration.

However, I agree with previous posters. If you want to be on the books, only agree to work on the books for a like-minded family! They are out there, though often want more educated, US born nannies (which you may well be!). Or work in childcare in another fashion.

Bostonnanny said...

I just re read your comment and realized you want to pay taxes without your employer knowing. I have to tell you that is a horrible Idea, if the family doesn't know your doing it and come tax you file everything they will get screwed up the ass with back taxes, fines and possible jail.
Be prepared to lose that job right after. Most families don't wanna pay taxes because it becomes really expensive. My family would end up paying an extra 5000 on top of what they already pay me a year.
It's not right to not pay taxes but it's pretty shitty to accept a job then screw the family over. They would get audited and have to prove everything. You need to find a family that is on the same page.

Also in order to do it right in which you won't get fined as well, you need an ein pin and be in the IRS system. You can't just save all the money for taxes and ss then at tax season expect to just pay it(not unless u do a 1099). I can't stress enough..find a family willing to do it otherwise you will get a small fine and they will have back taxes, fines and possible jail/legall problems.

Bostonnanny said...

If your really having problems finding a family that pays on the books then you can ask them to only file 25%of your earnings and pay the rest in cash. It will be cheaper and they will be safe from any legal issues but u would only get unemployment based on the 25%.
I would do that as a last resort.

Missy- so by paying cash after 40hrs you get out of paying overtime...doesn't sound like a good deal to me.

curious said...

I'm genuinely curious as to your moral and/or practical reasons for feeling comfortable paying cash for part of the salary but not all?

Tc said...

My boss doesn't take out taxes but I file at the end of the year as I am self employed. That way I take deductions for my car (bought it last year) as well as miles and my health insurance. This year I broke even. Last year I had to pay some. I know the same thing is going to happen next time too

Sarah said...

I've alway dumped my extra on a 1099-MISC, but to put it all there as a full-time nanny? I don't know.

Cris said...

OP that is really moral and honest of you to want to report your nanny income. Many nannies/families deal only w/cash these days as it is very complicated working with either an accountant and/or payroll company.
I think many families pay in cash also because of the liability factor. A good friend of mine was a nanny in Chula Vista CA and got injured on the job. She had the family investigated and she ended up getting compensated for her injuries and the family was found liable for it. It was a safety factor they overlooked in the home...many people who employ nannies do not realize this, but if they are to legally become "household employers", they need to provide a safe working environment for the nanny and if they do not and she is injured on the premises, they not only have to pay her medical bills, they are liable for other damages as well (just like in a real company.)
I agree with Boston Nanny. If you are going to claim your income come tax time, let the family know. Do not blindside them. Not only will you get fired, they will get in major trouble with the IRS + the children will suffer. If you really care about the children (I hope you do since you are there nanny!) do not screw over their family because they will be affected as well.
If you really want an income tax compliant family, then maybe you can though an agency. These families usually pay in taxes.

Amy said...

Bostonnanny - somewhat unrelated to this post, but If I recall correctly, I remember you saying a few weeks ago that you know families in the Boston area searching for nannies. I'd love to speak with you more; I currently am in NJ but I've been trying in vain for the past 3 months to find a position in Boston and I would greatly appreciate your insight. How can I get in touch with you?

bostonnanny said...

Hi Amy,
two of the positions were filled, and the third was a no go because the family ended up being cheap and unprofessional.

Right now is a really hard time to find a position because most families are looking for part time after school nannies. Its gonna be hard if your not already in Boston. I would try Beacon hill nannies or Boston nannies, they are agencies. I found my job on craigslist over a year ago, so search that everyday.
I met a nanny who's boss is hiring a second nanny for her twins but that won't be until Jan.

OP said...

Missy, I'm in the Bay Area. Where are you?

Bostonnanny - yes, I know all that. The problem is, few families here want to do that! I was so fortunate that my last family was able to do this for me.

Nycmom - thanks for your thoughts, and your thoughtful comments in general - I always enjoy reading what you say. Yes, I am a US born, native English speaking nanny, which makes me somewhat of an oddity here.

Bostonnanny - yes, I understand what you're saying about the family getting audited, but I don't see how that would happen, because I'd never have their SSN. And I think you're right, that I won't be able to just pay at the end of the year.

TC - that's a good idea. Maybe I could do it that way.

Chris - yes, I'm thinking I'd have better luck with an agency family.

Thanks so much for everyone's help! I just want to be legal and I don't want to screw my new family, whoever they may be.

VAnanny said...

OP, I always have to give my employers SSN when filing my taxes as a nanny. Just wanted to make sure you knew that. Good luck!

MIssy said...

Oh woops! Guess I wasn't clear. Nanny would receive time and a half in cash for overtime. She will get about 15-20 an hour for the 40 hours, and then time and a half for anything after that. The OT hours would either be early morning or late into the evening, so we figured this was just a nice gesture regarding OT. Nanny can choose to declare it or not when the time comes.

Tales from the (Nanny)Hood said...

You will have to file as a self-employed childcare provider, which is not what you are, of course.

You will need to pay quarterly Estimated Income Taxes, which you send in to the Federal and State gov'ts.

You will get stuck with paying all 15.3% of SS/Med taxes. That will cut your income drastically.

IMO, you would be better off presenting potential employers with info on how easy it can be to sign up with a "nanny tax" company that will handle the details.

Yes, it will cost employers about 10% above your salary to pay you legally. If they can't afford that expense, they need to explore other childcare options. Nannies are not for everyone.

Of course, passage of The Fair Tax would eliminate this issue....

Bostonnanny said...

OP- They will find out because you need to tell the IRS where the money came from, and they will want the entire 15.3 not just your share. Who do you think will pay the employer's 7.53 share and unemployment?

If your willing to pay the entire 15.3 then why don't you just claim 1099?

You don't need their ssn, they need yours.
Most of the paper work for an household employee needs to be filled out by them. So please make sure the family knows.

pear said...

Families who dick around with a nanny's taxation need to be penalized. Report them to the IRS and report how long they have employed a nanny. I had an employer refuse to put me on the books. I worked three weeks. Quit, citing that they would not pay me legally. I put that in writing, saying specifically, " I realize that in the past, paying Alicia, Carrie and Maria cash under the table has worked well for you, but I can and will only file the letter of the law. Then I send the copy on to the IRS. And when you look at the big list of IRS offices, pick three of them. Not just one. Get a good buzz going. Get them audited. Filthy motheruckers.

Nanny X said...

Good luck finding a family willing to pay on the books. I have had no luck. And for those of us with mouths to feed and bills to pay, there is no holding out to find one who will.

bippityboppityboo said...

There is no way to get around self employment tax period. I also think it would be nasty to file without the family knowing it is possible to get traced back to your family. It happened to someone else on here I remember a similar post I read on another website. It was from the family and they were furious. Just be honest.

Ravenswood Nanny said...

OP, I have done this before - DON'T DO IT! You would have to report it as self employed and pay ALL of the taxes - state, federal, medicaid, etc + the self employment tax. There is no other way around it. If you report that you simply didn't receive a W2 from your employer they will fine your employer for not giving you one. It turns out to be really expensive when you are paying it all yourself. In Chicago I know that the federal taxes alone cost 14% of your income (which is usually split between employer and employee...).

Hold out for a family wanting to do things on the books - and make sure they get an employer id # and give you a W2. It's too costly to do it any other way. The way I do it with my family is that they pay their 7% above my hourly salary and take my 7% out of my salary. This is the way it should be done, thought it's a tad more costly for the family. In all the other areas it is pretty easy for the family to do it on the books, albeit a bit tedious.

Otherwise don't report at all...

TC said...

I will say I don't have a state tax (Texas) but it didn't cost me all that much, and like I said I broke even the second year because of my car. This year I think I'll have to pay as well. I babysit for other families as well so I don't report that I made X amount from one person, and because I don't keep track of exactly how much I bring in babysitting I do estimate that.

I liked the fact that I could deduct a whole lot more, I use my phone every day to communicate with my boss as well as set up jobs with the neighbors so that's a business expense as well as my computer and internet. There was a LOT of things I could and did deduct last year because I filed as self employed....now if I can only find a legit excuse to deduct my cable and cat food bills ;)

I actually tried filing as self employed and as misc income and I came out ahead if I filed as self employed. I use Turbo Tax online and it walked me through every single step.

Katya said...

OP, have someone who is familiar with tax law sit down and run the numbers with you. When I did this I found the difference in the amount that I would be paid filing as self-employed vs not is so small that it was worth it to take the higher paying job not on the books, even in CA with a decent state tax.

cali mom said...

I just have to chuckle at all the outrage over how "expensive" it is to have 10% or even 15% of your pay witheld for taxes. When I was employed FT, I'd get anywhere from 25% to 33% of my pay deducted from the gross on every paycheck, with all the state and federal taxes, employee contribution to healthcare, flex-xpending account, 401k, etc.

As long as you never plan to file for unemployment, disability or family leave benefits then as Katya says, off the books is better. But if you ever need a state benefit, you're screwed.

Maria said...

I think it is up to the family and nanny whether or not they want to get the government involved or not. I used to babysit as a kid and just got paid in cash/check. But now as an adult, I guess the rules are different. It depends on a lot of things. Sometimes I work on the books and sometimes it is based on a "gentleman's agreement." There are pros and cons and both should be considered prior to employment.

Jamie said...

Cali mom- that extra 10-15% taken out was put towards things that benefit you. Most nannies don't get company matched 401k or good health benefits. You prob made over 30grand a year, so saving and paying bills might not have been a huge issue.
Some nannies forgo taxes because they can barely keep their head above water. So in the end they will always get screwed either no state benefits or struggling to pay bills.
I live below my means and hardly ever spend money. I wish I could open an Ira but if I put anymore towards something else I can't eat.
Taxes take a toll on me.

I guess I'll either have to find a different career or marry for money lol

Tales from the (Nanny)Hood said...

cali mom said..."I just have to chuckle at all the outrage over how "expensive" it is to have 10% or even 15% of your pay witheld for taxes. When I was employed FT, I'd get anywhere from 25% to 33% of my pay deducted from the gross on every paycheck, with all the state and federal taxes, employee contribution to healthcare, flex-xpending account, 401k, etc."

Generally speaking I have 22% of my paycheck deducted for just basic SS/Med/Fed/State taxes.I pay for my own health insurance out of pocket, which costs me an additional 12% of my gross pay, and I contribute to my own IRA, although it's minimual - 2% of my gross pay. And a flex spending account? HA!

If I had to pay all 15.3% of SS/Med instead of just my half, I would be in deep trouble.

So yeah, not shocked at having such large deductions, but there is a big hit if you lose another 7.65% in addition to the ~30% you already lose as a legally paid nanny with no employer provided health benefits or retirement benefits.

Katya said...

I should clarify: I meant off the books as far as the employer was concerned. I filed as self-employed. The self-employment tax really isn't that bad once you run the numbers, seriously.

cali mom said...

Just have to clarify now that I read your mention of "employer proivided health benefit". Most employers in companies do NOT "provide" health insurance in the sense that they actually pay for it. They generally offer access to a group plan, (helpful for those of us who get turned down flat for every individual plan offered by every insurance company in existence), and they frequently pay a portion of the premium, for the employee only. Half if you are lucky.

cali mom said...

This actually reminds me of a question which I've wondered about frequently here.

How does a nanny's employer gp about "providing" health insurance to the nanny? A small business usually has to have at least 3 employees to be eligible for a group plan, and the family can't add her as a dependent, because she isn't. So does this mean that they just cover the cost of the nanny's premium on whatever private plan she chooses? Or part of it?

TC said...

cali mom I think that's how they do it.

My boss doesn't pay for my health insurance, I pay it 100% out of pocket. I went to the blue cross blue shield website and went through the million and one steps to apply. My premium is 147 a month though so I'm not complaining though it would be nice if they covered at least half of it.

OP with an update said...

Hi everyone and thanks for all your input. I had an interview yesterday with a family who was pretty adamant in our phone interviews that they want to pay cash, but I know I'm one of their final candidates, which is what prompted my question.

Based on what some people have said here about how it really isn't that much more for employers to pay taxes, I went to the employer payroll calculator on the Breedlove website.

Turns out that if I'm willing to work for them at the bottom of my rate range ($15/hr), then they'll pay only a hair over their max cash rate. I printed it out & gave it to the mom - we'll see what happens.

Thanks so much for all your help and everyone's input about working for cash, doing it as self employed, and everything else.

As someone fairly new to the professional nanny scene this website has been invaluable to me to know what's normal for nannies and nanny families. You guys have been a lifesaver. :)

MB said...

One of my families used Nanny Pay software. It figured everything out for them, including filing
W2's, it provided paycheck stubs and records. I would highly recommend this to families that just think it's too complicated to pay their nannies legally. We need our social security and especially our unemployment. If you are paid in cash you forgo these benefits.

MediationMama said...

I agree with prior posts, that you should try to find a family that wants to pay you on the books as much as you would like. It will cost the employer more than "just a hair" more to pay you on the books. First, they have to withhold certain taxes, and calculate payroll, which if they're smart, they'll get a company like Breedlove to do. They have a good price, but it still costs probably around $1000 extra per year. Plus, the employer is responsible for part of you social security taxes. So, they actually have to pay more than they agreed to pay you, (1/2 of your social security is deducted from your paycheck, and the other 1/2 they pay.) Also, the employer is responsible workers comp and disabililty, which most employers who pay off the books avoid as well. It is definitely a pain, which is why most nannies and families prefer off the books. So, I strongly recommend looking for a family willing to pay you on the books, so that you are on the same page and save yourself the stress later!