Tuesday, July 22, 2014

What are the risks of not paying these "nanny taxes"?

It is critically important that household employers understand that, as employers, they are subject to four types of laws: immigration law, payroll tax law, labor law, and insurance regulations. Hiring a nanny who is not legally authorized to work in this country is a violation of US immigration law, and is typically only subject to a civil fine should you be caught.
Submitting your personal Federal income tax return and willfully failing to report and pay the household employment taxes is felony tax evasion.

The penalty to the employer caught by an audit is typically financial (Bernard Kerik notwithstanding), but could include criminal charges and result in the loss of the employer’s professional accreditation (law license, CPA license, etc.). Financial penalties include employer and employee back taxes, interest and penalties, as well as legal and accounting fees incurred to come into compliance. Failing to properly pay your worker at an agreed hourly rate and/or failing to maintain various required records is a violation of labor law, and increasingly employees with a grievance are encouraged to file Wage and Hour claims by both state law and organizations such as Domestic Workers United. In New York State after the passage of the DWBR in 2010, 75% of complaints filed resulted in financial awards ranging from $5,000 to $100,000.

Many states require employers to carry Workers’ Compensation and/or Disability Insurance policies in case a worker is injured on the job. Failure to do so can result in substantial fines.

What about undocumented Nannies?
Even if you hire a nanny who is not authorized to work in the US, you remain legally obligated for all employment taxes described in this guide. An undocumented worker is also subject to the same Wage and Hour requirements and payroll l notification requirements as a documented worker. In addition, an undocumented worker is required to pay income tax. Undocumented workers are not eligible for a social security number but will be issued an Individual Taxpayer Identification Number (ITIN). The ITIN does not change the individual’s immigration status or authorization to work in the US. (See Appendix B) The current IRS disclosure rules do not permit the sharing of confidential taxpayer information with other government agencies, including Immigration and Customs Enforcement.

Even if you currently employ a nanny and pay “off the books”, it is never too late to comeinto compliance. You can file tax returns and make tax payments for prior years if you wish.

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