1099 vs. Household Employer: here's the skinny...

The misconception of nannies being independent contractors, rather than household employees is causing many families to suffer the wrath of the IRS.

I cannot begin to tell you how many families are under the impression that nannies, housekeepers and all other domestic workers are independent contractors.

In fact, most families I encounter have no idea that this is completely untrue. Sadly, the majority are under this impression because they have never really been educated on the domestic employment laws.

Here's reality: if you are to employ an individual, where the majority of their work is performed in or for your home, in addition to paying them cash wages of $1600 or more per calender year, you then become their household employer, and they are your employee. Depending on what you pay your employee, you may have additional employer tax responsibilities (I am happy to address this at another time) as well.

What you need to think about is this: Let's say your nanny has been working in your home for the past 5 years, live-in or live-out.

Now that the children are all grown up and ready to be put in school full-time, you decide you no longer need her as much. Now, put yourself in your nanny's shoes. Now out of a job and unable to secure one in this economy, your former nanny decides to file for unemployment.

As requested, she gives the unemployment office your address and contact information. Shortly after, you get blind sided by the letter you received in the mail stating that your former nanny has filed an unemployment claim.

At this point, you probably feel a little betrayed. After all, how could she do this to you, especially since you made it completely clear to her that she was an independent contractor and that she would be responsible for her own taxes? You and your husband had agreed that you would pay her a couple of dollars more per hour to compensate for the taxes at the end of the year. Bad idea.

For matters of principal, you choose to fight the claim...and unfortunately, you lose. As my great accountant told me, unlike a court of law, when it comes to owing taxes, you are guilty until proven innocent. Regardless of what you may have thought or any misconceptions you previously had, you will still be required to pay penalties in addition to all the back taxes you owe, going all the way back to day one.


At the very least, I encourage all families to take the initiative to make an educated decision prior to hiring your next household employee. Chances are that one day, you will have to relieve your nanny of her duties. Protect yourself from the beginning.

For more information on Household Employment, please follow this link:

http://www.edd.ca.gov/pdf_pub_ctr/de231l.pdf