Did Your Nanny Ask to be Paid Under the Table? Here's What to Say!
Help Your Employee Understand Why It's Smart To Be Paid Legally.
“One of our nannies was diagnosed with cancer, and used the state disability program. Had she been paid under the table that support wouldn't have been available to her. It was the right thing to do!”
“Once our youngest child started school, we no longer needed our nanny, 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 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.”
Some household employees may not understand the bigger picture and how they are losing out if they are requesting to be paid under the table. If they are being paid over $2,700 in 2024, being paid legally is not only the law, it brings them short-term and long-term benefits:
Household employees often qualify for tax credits and tax breaks such as the Earned Income Tax Credit (EITC) and the new Advanced Child Tax Credit Payments.
You (the employer) can contribute to your employee’s health insurance premium as a tax-free boost to your employee's wages, which helps both of you save money (Nest Payroll makes this easy). Typical employer contributions we're seeing range from $50 to $200 each month.
They qualify for unemployment. This can help employees transition from a job that ends to looking for a new job. The household working world can have high turnover, with kids growing up fast, or an elderly person needing care passing away. Employees can be dismissed from their jobs easily, but they wouldn't qualify for unemployment unless they were paid legally (and note to employers: if the employee applies for unemployment anyway, this would expose the employer).
They can apply for loans. Without salary history, this just isn't possible. Student loans, renting an apartment, mortgages, credit card applications, auto insurance applications and car loans all require employment history.
They save for their future. They will build up their social security, which is based on their 35 highest-earning years in the workforce. For every year employees are paid under the table, it will be a zero against their future. Read here to learn how it gets calculated.
They pay into Medicare so they can have health insurance when they reach 65. It takes at least 10 years (or 40 credits) working and paying into Medicare to receive medical coverage at retirement age. Every year counts!
If they get sick, hurt or pregnant, they’ll get disability. If your state offers it, and they get hurt or sick NOT on the job (or pregnant), they could qualify for a short-term period to receive a weekly benefit, usually a portion of their salary. This can help to tie them over while they recover. Please check your specific state disability plan. If you live in a state that doesn't include disability taxes, you can purchase it directly and it is relatively inexpensive.
They qualify for workers' compensation (assuming employer has this coverage, mandatory in many states). 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.
Employer taxes are about 10% of wages, so if you pay your employee $20/hour, budget $22. Download Nest Payroll to use our free Budget Calculator so you can create a budget that works for you and your employee. And, your employer taxes might even be zero if you qualify for dependent care tax credits and reimburse health insurance costs.
When your employee gets paid through Nest Payroll, he or she receives a paystub automatically through email, including a helpful link on how to better understand the pay stub break out.
For further understanding, read here for an interesting explanation by the State of California (it applies to all states) as to why paying under the table isn't worth it. And remember that you, the employer, will be the one paying ALL back taxes (employer AND employee), and any fines and penalties if the IRS finds out you were paying under the table.
The information provided on this page is general in nature. This is not to be taken as tax, legal, benefits, financial, or HR advice. Since rules and regulations change over time and can vary by location, consult an attorney or financial advisor for your specific situation.