I have been paying my Nanny off the books for years. Each year we discuss the tax issue and she has told me she prefers to be paid in cash and off the books. I would prefer to file the proper taxes. What do I need to do to correct for all the years I didn't pay? How can I clean up this mess?
While I respect your desire to "come clean" and make up for your past crimes (and yes, what you did IS a crime), there's a big problem with what you're trying to do -- you can't do it without drawing the IRS' attention to your *nanny's* illegal behavior. Perhaps you're willing to pay the payroll tax, interest and penalties from the previous years, but are you willing to cause the IRS to go after your nanny and make her pay them as well? This does not seem fair, considering that you agreed with her each year to pay her under the table as she requested. If you're willing to do that, then what you need to do is find yourself a good accountant who will work with you to recalculate your taxes for the previous years and then work with you and the IRS to come to a reasonable agreement about how much you will have to pay in interest and penalties to clear your record. If you're not willing to do that, then I'd suggest that you tell your nanny that starting this year you're going to pay her on the books, leave the prior years alone, and just hope that the IRS doesn't decide to come after you about them. It seems likely to me that your nanny will ask for a raise to compensate her for your change of heart, the simple effect of which is that she'll have to report and pay taxes on her wages and hence her take-home pay will go down. Incidentally, remember that the shoe could just as easily be on the other foot.... If your nanny suddenly gets a fit of guilty conscience and decides to come clean to the IRS, they'll come after you.
More likely is the oft-played script:
Nanny to SSA: "Gimmie my benefits." SSA: "You didn't work." Nanny: "I worked for Mrs. Gotrocks for nn years." SSA to Mrs. Gotrocks: "Nanny says she worked for you." Mrs. Gotrocks: "She was terrific." IRS to Mrs. Gotrocks: "Hello."
-- Phil Marti Clarksburg, MD
I'm not so sure the IRS is all that interested.
I employ a housekeeper who works for 5 different families. 4 of them give her a W-2 form and the 5th (let's call her Mrs. F) did so once or twice several years back, then started "forgetting". Even when the housekeeper kept asking her for it, she would delay and make excuses. The housekeeper filed Form 4852 three years in a row, reporting the income she received. The IRS sends Mrs. F a letter each year telling her to give the housekeeper a W-2 but she never does. Maybe it'll come around to bite her in the rear one of these days but it doesn't seem to be high on the government's priority list. Anyway, when the housekeeper went to Social Security to request benefits at age 65, they told her they had no record of Mrs. F ever paying SS or Medicare taxes on her behalf, even for the years that she did provide housekeeper with a W-2. Sue
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.