Nanny-Tax Shirking Is Growing

Julie Andrews
Associated Press HO

Here's a budget-plumping idea: enforcing the nanny tax.

The tax applies to anyone employing a worker in their household to whom they pay more than $1,700 a year. That goes for housekeepers, nannies, and healthcare workers. The tax calls for withholding 15.3% a year to cover Medicaid and Social Security payments.

The problem is, hardly anybody pays it.

Two years ago, about 219,000 households filed the required Schedule H that goes along with the payments. That's down from about 500,000 in 1994, reports columnist and Syracuse University lecturer David Johnston. He used  a thesis by U-Mass Amherst graduate student Catherine Haskins as a springboard into the issue.

So, are that many fewer people hiring household help?

No way. Johnston says the paperwork has become too complicated to fill out, and many people can't afford to pay the taxes. The biggest evaders are those who make less than $31,000 a year, he says. He also says more nannies are setting themselves up as businesses, exempting themselves from the tax.

But here's another explanation: the workers themselves, who often are all too happy to take wages under the table. Many people who hire help say their employees beg them not to pay the tax, not least so they can pocket the difference. Those pleas have doubtless become louder since our economic meltdown began.

An interesting tidbit: Haskins reports that more than 2% of tax filers who pay nanny taxes pay more than $200,000 a year for domestic help. In other words, if you have a retinue of servants, you probably have a payroll system already set up to take care of complicated paperwork like Schedule Hs.

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