Evading the "Nanny Tax" Is a "No-No"
ABAJournal.com reports that more individuals are evading the “Nanny Tax,” that is, they are failing to pay payroll taxes for domestic employees (“More Individuals Evade ‘Nanny Tax,’ a Risky Strategy in a Tough Economy,” posted by Martha Nell). The data on “Nanny Tax” evasion was first reported by the Wall Street Journal.
The requirement, summarized by ABAJournal.com and WSJ is as follows:
Those who pay a household employee more than $1,600 annually are required to pay Social Security and Medicare taxes, federal and state unemployment insurance and other taxes on their behalf . . .
Domestic workers seem to present the greatest temptation but small businesses in general, for any type of workers, may be tempted to rationalize away their payroll tax-compliance obligations. The "Nanny Tax" designation is used when applied to domestic workers but the concept is the same when applied to any small business. In either case, It’s a bad idea. Or as ABAJournal.com put it, it’s a “risky strategy.”
And, equally bad is the idea of rationalizing that the workers (domestic or otherwise) are not employees but “independent contractors.” As we have said quite often before: the determination of whether a worker is an independent contractor is very fact-dependent and can be challenged in litigation, whether with a disgruntled ex-employee or the IRS.
