“…You won't always have the energy you have now. You could get seriously injured, or just burn out. Every dollar earned is important for social security." -anonymous nanny
"Once our younger child started to school, we no longer needed the babysitter, and she went to work for others. One day she called, asking if we had paid taxes on her. I said we had. She needed proof because she had health problems and couldn't work any more. She needed Social Security income and Medicare benefits. Without those, she couldn't afford the drugs for her heart condition. Fortunately, I not only paid the taxes, I had the records to prove it." -anonymous parent
If your “office” is in someone’s home, make sure that’s no excuse for missing out on critical safety nets and long-term security. If you are being paid over $2,100 in a year (2019) by any household, being paid legally brings you critical benefits:
You qualify for unemployment. You are entitled to receive up to 50% of your salary for six months (current cap $450/week) if you are dismissed from your job through no fault of your own. You wouldn't qualify for unemployment unless you are paid legally.
You can apply for loans and health insurance subsidies. Without salary history, loans are difficult to get, especially at a fair interest rate. Student loans, renting an apartment, mortgages, credit card applications, auto insurance applications and health insurance subsidies all require employment history.
You save for your retirement. You will build up your social security, which is based on your 35 highest-earning years in the workforce. For every year you are paid under the table, it will be a zero against your future. Read here to learn how it gets calculated.
You get health insurance when you are older. It takes about ten years of working to earn enough credits for Medicare at retirement age. Make sure every year of work counts towards this benefit!
You are protected if you get hurt OFF the job. If your state offers it (currently CA, NJ, RI, HI and NY), and you get hurt or sick NOT on the job, you could qualify for a short-term period to receive a weekly benefit, usually a portion of your salary. This can help to tie you over while you recover. Please check your specific state disability plan. If you live in a state that doesn't include disability taxes, your employer can purchase it directly and it is relatively inexpensive.
You are protected if you get hurt ON the job (assuming employer has this coverage, mandatory in many states including CA). This benefit provides coverage for lost wages and medical bills related to an injury ON the the job. Employers who provide this coverage are protected from lawsuits if there's an accident, so it is worth the protection for the employer too!
For further understanding, read here for an interesting explanation by the State of California as to why paying under the table isn't worth it. It’s also important to know that the employer will be required to pay all back taxes (employer and employee), and any fines and penalties if the IRS finds out you were being paid off the books.