In December of 2017, the INA Commissioned a US Tax Compliance Study (full results of this study can be found on our website.) These results were the topic of a presentation in June 2018 at the IRS Research Conference and it found that less than 1/3 of Nanny Employers pay the Nanny Taxes owed.
Several weeks ago the INA was asked to talk with the Wall Street Journal regarding this Tax Compliance Study. The article entitled “You’re Not the Only One Who’s Not Paying Your ‘Nanny Tax” was released October 12, 2018, and while it provided a window into the study, we feel that it missed several important points. Below you will find our response to that article by the Wall Street Journal; we have shared this response with them.
As the umbrella organization for the in-home childcare industry, the International Nanny Association (INA) was pleased that the Wall Street Journal reached out to us for their article highlighting the Tax Compliance Study we commissioned in 2017. This is a topic that is highly relevant in our world today and we are glad that the Wall Street Journal has taken notice of this tax compliance problem.
However, we were disappointed when the headline seemed to imply that it is easy to get away with evading your employment tax obligations. Stating, “You’re Not the Only One Who’s Not Paying Your ‘Nanny Tax,” almost encourages others to forgo their legal responsibilities and ignore these tax laws. We would have preferred to see a focus on the caregivers who are the victims deprived of benefits they deserve or on the nearly $6 billion dollars the US Government fails to collect every year because of this lack of compliance.
Employers who pay their in-home caregivers and other staff “under the table” deprive these workers of the rights they are given under the law. While your article stated correctly that “some domestic workers want to be paid off the books” many do so because they feel they have no other choice or do not understand what they are missing. These are professionals who work hard and deserve the same rights and protections as other employees. This includes access to Social Security and Medicare benefits, unemployment and workers compensation insurance, not to mention overtime, paid leave and qualified retirement savings plans. The lack of compliance from nanny employers is depriving workers of the very benefits employers themselves would never be willing to go without.
Further, the article failed to mention the many benefits of paying your nanny legally. For instance, employers can take advantage of tax incentives like the Childcare Tax Credit and Dependent Care Flexible Spending Accounts offered through their employers. The elimination of financial risk through workers compensation insurance and the avoidance of potential penalties for delinquent tax filings make legal pay an easy choice.
Lastly, we feel that the article missed a chance to showcase the study’s suggestions for improving the compliance rate. These include easy to understand reference guides published on the IRS website to help parents who want to employ a nanny but do not understand their responsibilities as an employer. The report suggested targeted education to employers and their tax preparers on worker classification and the common finding that nannies are almost always employees, not independent contractors. It also recommended a short amnesty program designed to allow people to safely come forward and pay back-taxes without penalty, followed by increased enforcement actions.
It is past time to stop thinking of the work nannies and other domestic employees do as something less valuable than what others do in an office. We need to stop ignoring this issue, stop accepting that few pay this tax, and start calling it out as the theft of benefits that it is.
Tonya Sakowicz and Megan Metzger
Thank you to HomeWork Solutions, Care.com HomePay, and GTM Payroll Services for their sponsorship of this Tax Compliance Study and resulting information shared with the IRS possible.