Paying Nanny through Company Payroll

I had the lovely pleasure of meeting with Tom Breedlove from Breedlove and Associates, today.
Breedlove specializes in Domestic Household payroll, offering families the tools needed to pay their domestic employees, legally and accurately. We've recently paired up with them to offer our clients additional value by providing a free customized assessment and layout of exactly what financial costs are incurred, without any future obligations to them. We're excited to be able to offer this extra value at no extra charge to our clients!

One of the highlights of our day was our discussion surrounding the legalities of compensating a domestic employee through a company payroll. Putting aside the fact that we all know it is illegal to 1099 a household employee, there still seems to be some uncertainty that lies behind paying your household employee through a company payroll. Here's the truth...

Technically, you can pay someone through a company payroll. However, not only is it illegal to try and deduct/itemize their earnings as a business expense, but there are also significant penalties for doing so --possibly even jail time, depending on the severity of your case. To the IRS, a domestic employee is considered a personal expense and not a business one. Furthermore, withdrawing personal expenses from your business account may automatically raise a red flag to the IRS, resulting in an audit.

That said, while it is not illegal to pay your household employee from your company payroll, it's certainly smarter to pay them from a personal account, which will greatly decrease your risk of getting into some financial trouble.