Who's paying nanny taxes? | Miami Herald

It's a given among the stroller set that many of them share a secret powerful enough to bring down political careers: They don't pay taxes on their nannies.

Leslie Rubin, a lawyer who has a 5-year-old and a 9-month-old, doesn't want to name names. But she's pretty sure most of the parents in her family-friendly Brooklyn neighborhood aren't following the law.

"I am about the only person I know who pays on the books," she said. "I think the only people who do are lawyers or other government workers."

Nanny tax filing service at nannytax.com. 

About 225,000 people paid taxes on household help including nannies in 2006, the latest year reported by the IRS. But the government estimates that 770,000 of the nation's 1.4 million child-care workers work for private households or are self-employed.

Nannies can make between $450 and $750 a week, not counting taxes or health insurance, which costs an additional couple of hundred dollars a week.

"People are caught in a bind. Most people I know aren't hiring a nanny because they are wealthy," Rubin said. "There are so few day-care slots available."

For public officials like Zoe Baird and Nancy Killefer, failure to pay the tax meant the end of political rise. Both women resigned as choices in top political office; Baird from President Clinton's Cabinet and more recently, Killefer as President Obama's choice for chief compliance officer.

But for everyday families, it's more about principles than a fear of getting caught, because most people don't. An IRS audit is the only source of enforcement, with fines for offenders.

Even knowing whether you are supposed to pay can be confusing. (You are responsible for paying taxes on any worker paid more than $1,600 in a calendar year.)

Kristin Smith, a lawyer with an 8-month-old son, said her nanny likes to be paid on the books, and in this uncertain economy, is relieved she could claim unemployment if she had to be laid off.

"Also, I like the idea of setting up a professional relationship with your nanny," Smith said. "Otherwise, it's kind of like you're colluding with your nanny against the government. It sets it up to say that it's OK not to tell an authority figure about what you're doing."

The term "nanny tax'' is really an umbrella for several different taxes: Social Security and Medicare taxes and the federal unemployment tax. State unemployment tax and perhaps state disability tax may be owed as well. Rubin found the tax forms incredibly difficult.

There are companies around the country, like NannyTax in New York and The Nanny Tax Co. in Chicago, that help navigate the complicated system of withholdings and taxes, but the services cost more than $500 a year.

Michelle LaRowe Conover, of the International Nanny Association, said the taxes are important to the child care workers, too.

"Without them you have no proof of work," she said. "You can't refinance your home or get good health insurance."