Don’t Let Your Housekeeper or Nanny Create Tax Problems for You
It is quite common for married couples or single parents to hire a housekeeper, nanny, babysitter or other childcare provider to watch their child(ren) for a few hours per day or week so they can work. It is also common for such workers to be paid regularly by cash or check. Normally, one wouldn’t give this arrangement a second thought, but in the context of a divorce or child support proceeding, this oft-used informal employer-employee arrangement can open a Pandora’s Box of problems with the Court and the IRS.
The issue of housekeeping expenses can arise in the context of a divorce regarding living expenses and standard of living claims. Child care expenditures arise in child support proceedings, as child care costs are a statutory add-on to basic child support. The custodial parent incurring child care expenses can seek reimbursement of some portion of that expense from the non-custodial parent. As a result, there are often declarations of regular weekly or monthly payments made to housekeepers or child care providers. If the payment for these services are made to housekeeping or child care businesses, there should not be any problem. However, frequently these payments are made to privately hired individuals.
Under Federal income tax rules, “household employees”, such as nannies, babysitters, housekeepers, or even the “cleaning lady” who comes to the house once a week, can create a tax liability for the payor(s). Generally, if a taxpayer (or taxpayers, in the case of a married couple) pays any single household employee $2,100 or more during 2018 (this amount can change from year to year), the taxpayer(s) is/are required to file a Schedule H with their tax return, and pay appropriate employer Social Security and Medicare taxes and also withholding for the household employee(s). Further, the taxpayer is required to provide each such household employee with a W-2, which should also be filed with the IRS. (See IRS Publication 926 for more information.)
Thus, in any divorce or child support proceeding, where it is alleged that someone pays for housekeeping or child care services in cash, they may be risking trouble with the IRS if proper employee withholding taxes are not paid and reported to the IRS.
Before raising this issue in a Divorce or Family Court proceeding, you should consult with experienced matrimonial and family law counsel to learn about your obligations, rights, and risks.