Did Your Nanny Ask to Be Paid Under the Table? Here's What to Say.

This is one of the most common situations household employers run into. A nanny, caregiver, or housekeeper says some version of: "Just pay me cash, it's easier for both of us." Sometimes they say it casually. Sometimes they're insistent. Either way, you're now in a tricky conversation.

The most important thing to know: you're the one legally on the hook, not them. The IRS holds the employer responsible for unpaid household employment taxes — even if the employee asked to be paid in cash. So the conversation isn't a negotiation between equals. You need to pay legally for your own protection. The question is how to bring your employee along.

Why employees resist being paid legally

Most resistance comes from one of three concerns:

1. They think their take-home pay will drop

This is the most common worry — and often the easiest to fix. The employee imagines that "going on the books" means their paycheck shrinks. In reality, the employer pays the employer-side taxes (FICA, FUTA, state unemployment), and the employee's only deduction is their share of FICA — which they would owe regardless when filing their personal return. For most household employees, the take-home difference is small or zero, especially after they apply tax credits like the Earned Income Tax Credit.

2. They worry about losing government benefits

Some employees receive subsidized housing, SNAP, Medicaid, or ACA subsidies tied to reported income. They fear that documenting wages will reduce those benefits. This concern is real but often exaggerated — many benefit programs already account for household employment income, and the long-term gain (Social Security, unemployment eligibility, mortgage qualification) typically outweighs short-term subsidy reductions.

If your employee's situation is genuinely complex here, suggest they speak with a benefits navigator or financial counselor before you have the conversation about going legal.

3. They've always been paid in cash

Long-standing informal arrangements create resistance to change, especially with employees who've worked in domestic settings for years. The familiar feels safe. The unfamiliar feels risky. This isn't a logical objection — it's a habit one. Patience and information generally fix it.

Two stories that change the conversation

When the abstract benefits don't land, real stories often do. Two from families we've worked with:

These outcomes happen routinely in household employment. Younger employees rarely think about disability or retirement until they need it. Older employees often discover they need it without warning.

What your employee actually gains

Here's the concrete list — useful both for your understanding and for the conversation:

1. Unemployment insurance. If you ever let them go through no fault of their own, they qualify for weekly benefits — up to roughly 50% of their wages for several months, depending on the state. Without legal employment records, this safety net doesn't exist.
2. Social Security retirement and disability credits. Social Security is calculated from a worker's 35 highest-earning years. Every year worked off the books is a zero against that calculation — meaningfully reducing eventual retirement benefits.
3. Medicare. It takes 10 years (40 credits) of paid work to qualify for Medicare at retirement. Years paid in cash don't count toward those credits.
4. State disability benefits. California, New Jersey, New York, Hawaii, Rhode Island, and a handful of others offer state disability insurance covering off-the-job injuries, illness, and (in some states) pregnancy. Eligibility requires a documented earnings history.
5. Workers' compensation. Coverage for on-the-job injuries — mandatory employer coverage in most states, and protective for both parties.
6. Tax credits. The Earned Income Tax Credit and Child Tax Credit can mean a sizable refund at tax time for lower-earning employees with kids. They're only accessible if the employee has documented W-2 income.
7. Verifiable income. For renting an apartment, applying for credit, qualifying for student loans, getting auto insurance at fair rates, or qualifying for ACA health insurance subsidies — documented employment history is required.
8. Health insurance contribution opportunity. You can contribute tax-free to your employee's health insurance premium ($50–$200/month is typical) — a meaningful boost to their compensation that's only possible with legal payment.

What to actually say

If you're not sure how to bring this up, here are three openings tuned for different situations:

"Won't this cost me money?"

The most common pushback is some version of "but won't I take home less?" The honest answer is "probably not much, and possibly more."

For an employee earning $20/hour:

• Paid in cash: gross $20/hour, no deductions, no benefits — but no Social Security credits, no unemployment, no documented income.
• Paid legally: gross $20/hour, with $1.53 in employee FICA withheld (7.65%) — net $18.47/hour, plus potential tax credits at year-end that often refund more than the FICA withheld.

Many employees with kids end up with a larger total annual income through legal employment because the Earned Income Tax Credit and Child Tax Credit refunds can be significant — sometimes thousands of dollars. The IRS publishes eligibility tools that can help your employee see what they'd qualify for.

The bottom line

Two things to remember when this conversation comes up:

If you've already been paying under the table and want to fix it cleanly, our catch-up guide walks through the process. The IRS is generally lenient with first-time household employers who voluntarily come forward.