It’s tax season, so many Americans are pondering whether to report the wages they’ve paid to nannies, elderly care workers, housekeepers, and the like. If you paid an employee $1,800 or more in wages in 2013, you are legally required to pay employment taxes.
Many ignore this rule, playing the odds that they won’t be singled out by the IRS. Recent estimates suggest that fewer than 250,000 U.S. households report household employee wages, even though occupations like child care, which are often based in homes, are growing, according to the Bureau of Labor Statistics. In a 2012 survey of 2,086 domestic employees in 14 metropolitan areas, less than nine percent worked for employers who paid into Social Security on their behalf.
On the surface, paying under the table seems like a pretty good deal for everyone: The nanny keeps more of her earnings and the employer doesn’t have the hassle of filing more paperwork.
But this type of arrangement is actually very risky business, and the person who stands to suffer most is not the family paying the additional tax burden, but the woman working the low-wage job.
Imagine being the household employee. Sure, it might be tempting to get paid under the table, especially if you’re barely making ends meet. However, what might seem like a rational decision (for undocumented workers it’s often the only option) actually has short- and long-term negative consequences. If a housekeeper or nanny is paid under the table, she has no access to unemployment insurance, workers’ compensation, disability benefits, Medicare, and perhaps even Social Security. In sum, she will likely lack the long-term resources required to look after herself and her family.