NEW YORK (AP) - 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
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.
That means at a minimum, tens of thousands of Americans fail to
pay the tax - but experts in the field say that number is probably
"It's hard to estimate how many nannies are working because the
vast majority are paid off the books," said Michelle LaRowe
Conover of the International Nanny Association, the umbrella
organization for in-home child care.
Sarah Edwards, who helped run a survey on nannies by Park Slope
Parents, a parenting Web site in Brooklyn, estimates that 9 in 10
of her readers don't pay the nanny tax.
In New York City neighborhoods like hers, day care spots are so
coveted that couples go on waiting lists before they even have a
child, so the only option for most working parents is to hire a
nanny. That doesn't come cheap: Nannies can make between $450 and
$750 a week, not counting taxes or health insurance, which costs an
extra couple of hundred dollars a week on top of that.
"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
daycare 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.
Parents questioned for this story often had no idea where the
financial threshold was. (You are responsible for paying taxes on
any worker paid more than $1,600 in a calendar year.)
So why bother?
"Just knowing that we're not violating any laws," said Kristin
Smith, a lawyer and mother of 8-month-old Fritz. Smith and her
husband Tom Sutton Nelthorpe, a financial journalist, pay their
nanny a higher salary in exchange for taking out taxes.
But Smith said their nanny Claudette 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 it say that it's OK not to tell an authority figure
about what you're doing. And if your nanny bumps the kid's head,
you want them to tell you that."
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 and counterintuitive.
"It was expensive and time-consuming," Rubin said. "I had to
throw up my hands. It's not self-explanatory. There's no single
resource, no place you could go that spells it out for you."
There are companies around the country, like NannyTax in New
York and The Nanny Tax Company in Chicago, that help navigate the
complicated system of withholdings and taxes, but the services cost
upward of $500 annually.
Alan Goldberg, CPA and owner of NannyTax, files thousands of
returns a year, and stressed the importance of paying on the books.
"When there is willful failure to file a return, the IRS is much
less understanding," he said.
Edwards, mother of twin 3-year-olds, opted to do half on the
books and half off, after a few years paying entirely on the books.
Paying half-and-half allows the nanny to take home more money that
would have gone to taxes.
Edwards isn't too worried about the implications - she figures
paying some tax will protect her, as long as she doesn't run for
But Larowe, a nanny for 15 years, 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."
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