Save Money By Being "On The Books"

Paying Legally Can Save You Money

"Give me the bottom line now", said my friend, the employer of a nanny. After calculating, I said "Guess what? It will cost you less".

How can paying legally cost a household employer less money?

People have different circumstances, but here's her situation:

  • 2 kids under 13

  • Lives in California

  • married, dual income

  • 35% tax bracket

  • one spouse has access to a Financial Savings Account (FSA) through work

  • nanny works 20 hours per week

  • Hourly rate is $18

  • homeowner's policy covers worker's compensation insurance for household workers 20 hours or less (check your policy).

Paying the nanny UNDER the table = $18,720/year

Paying the nanny legally OVER the table = $18,636/year

The difference: $84 saved + Priceless Peace of Mind

How is that possible? My friend will pay $1,866 in federal and state taxes above and beyond the gross pay, but she will receive a tax credit of $1950 (using the FSA plus an additional $200 from the child care tax credit). The bottom line: Not only does my friend pay $84 less, but she gets priceless peace of mind.

Peace of Mind  If she has to let her nanny go, or her nanny becomes injured, unemployment and disability are safety nets. My friend is shielded from paying double taxes and high fines when her nanny files for benefits. Her nanny gets hard-earned social security credits and Medicare. Documented work history makes basics like loans, renting an apartment or health care subsidies possible. And last but not least, keeping the relationship professional is better for everyone, especially the loved ones being cared for.