IRS Takes Aim at Nanny Tax Compliance

Aug 10, 2018 | Household Payroll & Taxes, Tax & Wage Laws

The IRS may focus on nanny tax compliance through a combination of enforcement and education.

Billions of dollars in tax revenue is lost each year in unpaid “nanny taxes.” The IRS is taking notice of the nanny tax compliance issue and could be putting household employers on alert.

In June, a study of nanny tax compliance by Brian Erard of B. Erard & Associates and sponsored by the International Nanny Association was presented to the IRS/Tax Policy Center Joint Research Conference on Tax Administration in Washington, D.C. The report estimated that between $3.3 to $5.7 billion in nanny taxes goes unreported to the IRS.

A recommended course of action for the IRS to improve nanny tax compliance includes:
• Increasing enforcement
• Outreach and education for household employers and their employees on their rights and responsibilities
• Clarifying confusing IRS publications including Publication 926
• Working with states on compliance
• Requiring income tax withholding in household employment, the only situation in which withholding is optional
• Offering an amnesty period for employers to pay back taxes with reduced penalties

Nanny tax compliance enforcement could take a two-pronged approach.

Tax letter audits could be targeted to two-income families with children in the household but no child care expenses claimed. Also, the IRS could seek to increase awareness of nanny tax compliance and make it easier for families to follow the law.

If you’re not sure about how to pay nanny taxes or if you’re doing them right, check out our nanny tax guide, which explains everything and will help you every step of the way.

Looking to become compliant in the easiest way possible? Call GTM Payroll Services at (800) 929-9213 for a free, no-obligation consultation with a household employment expert. We’ll manage your tax, payroll, and insurance obligations without the risks and hassles of trying to do it yourself.