Household employee taxes: what happens if you don’t pay?
You have an obligation to pay household employee taxes — but what happens if you pay your nanny, butler, or housekeeper under the table, instead?
It seems simpler to pay household employees under the table. It saves money for both you and your employee — at least, at the time. But in the long run, it could end up costing you much more for everyone involved. The savings are insignificant when you compare them to the potential financial, professional and even social consequences of avoiding household employee taxes.
Now, you might be thinking those risks are unlikely, and that they couldn’t happen to you.
But what if you have to let your nanny go, and she files for unemployment? What if your housekeeper, who worked in your home for 20 years, files for social security benefits?
Suddenly, you could be haunted by huge financial, legal, and even personal challenges you waved away as impossible, just to save money that now seems insignificant.
Fortunately, there is a simple solution: pay the taxes. When you pay your household staff legally, you eliminate risk, and set your employees up for success.
Legal and criminal risks
If you don’t pay domestic employee taxes, your biggest risk is facing a criminal charge of tax fraud. By not paying the government what is legally owed, people who avoid employment taxes are ultimately cheating the system and dodging the law.
Usually, in these situations, the IRS has one main goal: to receive the taxes owed (including interest). While you might think the IRS will let go of the criminal tax fraud case, there’s always a risk that they will pursue the charge further, and that you could be convicted.
Tax fraud is a felony, and a felony conviction can affect you for the rest of your life. With a felony on your record, you could no longer vote, sit on a jury, or use a gun.
You may also face civil penalties.
Financial and personal risks
A tax fraud conviction can threaten your career, too. Many employers see a felony as a red flag. And if you have a professional license or credential — for example, if you’ are a doctor or an attorney — you could risk losing it.
Even without a criminal conviction, the interest on the back taxes and the penalties for not paying can quickly add up. You might pay substantially more than your original under-the-table savings. The IRS could give you failure-to-file and failure-to-pay penalties that could double the taxes you owe, and interest could increase the amount even more.
Plus, there’s no statute of limitations on domestic employment taxes. If your employee files for social security benefits in 20 or 40 years, you could be audited and wind up paying decades of interest. It makes fiscal sense to pay on the books to protect your financial future.
To protect your rights, your career, your finances and your quality of life, it’s so important to pay domestic employee taxes legally.
Benefits of paying household employment taxes legally
There are many benefits of paying taxes on your domestic employee:
- You’ll avoid the time, hassle and emotional stress of dealing with a legal case.
- You’ll prevent criminal convictions from disrupting your life.
- You’ll minimize how much you spend on paying your employee.
- If your employee is a nanny, you’ll qualify for childcare tax credits.
- You can get worker’s compensation insurance, further protecting you from financial catastrophe.
- You’ll show your employee how much you respect them.
- Your employee can use social security, Medicare and unemployment benefits.
- Your employee can get a loan, mortgage or cell phone plan because they have a verifiable work history.
- You’ll have peace of mind.
Filing household employment taxes legally saves you from a world of trouble and provides invaluable benefits to you and your staff. As a principal, it is one of the best ways you can run a sustainable, ethical, happy household.
Paying your staff legally is easy with our partner HomePay. They facilitate household payroll in three simple steps:
- Customized payroll process. Set up a pay cadence that works for you, and they’ll onboard your employees to save you time.
- Tax returns filed automatically. They prepare your quarterly and year-end taxes – filed on-time, every time. Guaranteed.
- Unlimited access to experts. Contact their award-winning tax, payroll & HR specialists to have your questions answered quickly and accurately.
That’s it! Get started today.