Today’s economic budget crunch has everyone scrambling to save where ever we can. It’s not just the Big Car Companies, or the wall street corporations. Families across the nation are tightening their belts, doing with less, and scrimping and saving when they can. When families hire a nanny, a housekeeper, a chef, or any other household worker, they may make the assumption that they can pay “off the books” or in other words, not pay taxes on the employee’s wages. Some even approach this scenario like they are doing the employee a huge favor. After all, the employee will get to keep more of their hard earned wages, right? Another thought is that “everyone is doing it”, assuming that very few people pay employment taxes on their household employees. Who ever gets caught? Unfortunately for many, the IRS does care. For those who are audited and found guilty of fraud or tax evasion, the penalties are huge and jail time is a real possibility.
As the owner of a reputable domestic employment agency, I often find myself in an uncomfortable situation when I hear comments from my clients such as ” I’m going to call my nanny an independent contractor”; ”I’m paying part of her salary ’off the books”;or “I will put my nanny on my company’s payroll and call her a personal assistant”. None of these tactics are legal. I always advise my clients to speak with one of my trusted agency partners who are experts at minimizing their tax liability, informing them of tax credits and savings, and making their payroll and employee tax settlements painless.
I can honestly say that I’m sympathetic to my client’s perceived dilema. Sometimes they voice that paying the taxes may make the difference between being able to hire help or not. However the reality is as more household workers find themselves without a job, they’re applying for financial aid or unemployment assistance. This action has triggered the state agencies and the IRS to investigate household employers on a far more frequent basis. The law almost always favors the employee and the household employer finds themselves involved in a huge mess. In the long run, it’s far more sensible to be compliant with the law from the beginning.
The good news is that there are tax savings available to those who “Choose The Right” and pay their employees legally. Many families find that by paying the taxes correctly, they are able to take advantage of special incentives which may offset their tax liability. The only way you can be sure is to talk it over with a household employment specialist. It’s important to mention that this is NOT your normal CPA. Household employment is unique and many CPAs don’t understand the law as it applies.
One of our trusted partners, Breedlove and Associates, just added a wonderful tool to their website. If you go to www.breedlove-online.com/payroll-calculator you can input your employee’s pay and calculate your tax liability, the employees gross verses net pay, as well as the tax savings you’ll realize by utilizing the tax benefits offered to clients who pay legally. If you wish, Tom or Stephanie Breedlove offer a no obligation consultation. They can show you how to make the most of your pre-tax dollars, limit your tax liability and discuss payroll options which really simplify your life. After all, you’re busy enough!