How to Ask for Legal Pay (and Why It Helps Your Nanny Family, Too)

Having the “on-the-books” conversation with your nanny family can feel intimidating, especially if they initially suggest paying “under the table,” or if you have been working with the family for some time already without talking about it.

In most cases, families aren’t trying to take advantage of you. They may not realize their legal obligations as household employers, assume it saves everyone a bit of money, or are unaware of the tax credits available to them. They also may not know that the IRS is very specific about this, according to IRS publication 926 household workers (that includes nannies) are employees under common law.

Most importantly, many families don’t realize how much an off-the-books arrangement harms  the financial well-being of both their nanny and them

To start the conversation, ask to set up a dedicated, quiet time to sit down with your employers when the children aren’t around and distractions are minimal.  Share with them IRS publication 926, tell them that you learned recently that the IRS categorizes nannies as employees and being paid legally ensures you are setting yourself up for financial success. Being paid legally means you will receive the standard financial safety nets, benefits, workplace protections provided to workers in every other industry, and keep the IRS off your doorstep

Here is how you can explain the mutual advantages of legal pay during your conversation:

How Legal Pay Protects Your Livelihood

• Access to Essential Safety Nets: Being paid on the books means you are eligible for unemployment benefits if you are ever laid off, as well as state-mandated paid sick and family leave programs.
• Verifiable Income & Retirement Security: Working off the books hurts your Social Security account, reducing your future retirement payout. It also leaves you without proof of income, making it hard to rent an apartment, apply for a credit card, qualify for in-state tuition and federal financial aid, or secure a car loan or mortgage.
• On-the-Job Protection: If you suffer an injury while caring for the children, workers’ compensation insurance pays your medical bills and replaces lost wages. Depending on your state, families may be required to have coverage, or they can voluntarily secure a policy, but you’ll get this benefit only if you are paid legally.
• Access to Professional Benefits: If your family wishes to offer job perks like contributions toward health insurance or a retirement plan, you can only legally participate if your wages are fully documented.

How Legal Pay Helps (and Protects) Your Nanny Family

• Significant Tax Savings: Families can offset payroll costs by claiming a portion of your wages through the Child and Dependent Care tax credit or by utilizing a pre-tax Dependent Care Flexible Spending Account (FSA) through their workplace.
• Avoiding IRS Fines & Audits: Household employers are legally required to report employee wages and withheld taxes on their personal tax returns. Failing to do so means they are submitting a fraudulent federal document. This puts families at serious risk for IRS audits, workers’ compensation fines, steep interest fees, and legal penalties. Most importantly, while most audits only go back three years, there is no statute of limitations for false or fraudulent returns. They can be audited 10 years from now for taxes they should have been paying today.

Let GTM Help

You don’t have to act as a tax expert or carry the entire weight of this conversation. Use GTM Payroll as a knowledgeable, neutral third party to guide the process. You can share our Benefits of Legal Pay for Nannies guide so your family understands the financial perks and legal protections.

Also, your employer can take advantage of a complimentary, no-obligation consultation with a GTM household employment expert. We’ll walk your family through their obligations and answer any questions they may have.

Hiring a nanny?

Download Your Guide to Hiring a Nanny. In this guide, we lay out the steps on how to hire a nanny the right way and maintain a strong relationship with your employee.