Parents who pay nannies cash under the table may face penalties.
This tax season, how parents pay a nanny may make the difference between receiving a child care tax credit and owing thousands in penalties.
That means that if you're paying your care provider under the table, you won't be able to claim the credit unless you come clean to the IRS first. If you paid your nanny — or any household employee — more than $2,000 in 2017 , then you are responsible for withholding Medicare and Social Security taxes, which add up to 15.3 percent of wages and are to be divided between the worker and the employer.
The IRS and state tax authorities tend to find out about illegal arrangements — and the back taxes owed — when household workers file for unemployment insurance between jobs, said Swope. You may also face penalties for failing to send your nanny a Form W-2, stating his or her wages and taxes withheld. The last day to do so for the 2017 tax year was Jan. 31.
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