September 2, 2010

Sounds Pretty Crowded Under The Table

UMass Amherst economist Catherine Haskins did a study of off-the-books household work, which includes nannies and housekeepers, and part of me really IS shocked, shocked to hear there are so many nannies under the table:

Her analysis, which includes consideration of previous research and an ethnographic study of household employers and employees in Washington, shows how economic self-interest and tax-filing complexities combine to foster employer preference for what are politely called informal arrangements.
Haskins estimates between 80 and 97% of employers were paying nannies off the books in 2006. That's basically everyone--or everyone.

Even when they're annoying or transparently self-justifying, the NYT's comments are pretty good. Because, I'm sorry, but it really is not that much of a burden to file tax forms.

Nannies Under The Table [nyt economix blog]


Some of the NYT comments capture this point: it's not just employers. Employees typically prefer and ask to be off the books. There are a variety of reasons behind this, some are real, others are perception:
Employer may offer higher wage for on-the-books employment
On-the-books employment more likely to shine light on immigration status
On-the-books employment would lead to greater employee tax burden (depending on household income)
Again, some of these are more real than others but the the employee is playing a role here...and it's not 100% because of vulnerability...often it just seems to be preferable.

the employee is playing a role here

Aside from immigration issues, probably the biggest reason for this is health insurance.

Nannies who work off the books often qualify for Medicaid. Pay them on the books and suddenly they earn too much to qualify for Medicaid, but don't earn enough to afford private insurance (and most household employers can't afford to provide health benefits).

One more reason why our healthcare system sucks--it actually encourages otherwise completely honest, taxpaying people (on both the employer and employee sides) to be complicit in tax and Medicaid fraud.

From my experience, I agree that the employee is definitely playing a role and it wasn't because of vulnerability. Most of the nannies I interviewed wanted to be paid off the table and all of them were eligible to work in the US. I think the impression is that they would find employers more willing to pay their rate than if they were on the table as well as more money in their pocket (no income tax burden). For example, say $15 is the rate. For off the table, the employer would be out of pocket $15 cash and the employee pockets $15 whole. If we're talking on the table, to guarantee the nanny $15 take home pay (and that is how a lot of them negotiated with me), the employer would be out of pocket in the range of $17 to $19, depending on withholdings, etc. Therefore, not only is it an "inconvenience" of tax forms, but higher out of pocket costs for the employer. The employee would also need to file tax returns and pay income tax, more money out of their pockets.

In addition, it's not just Medicaid, but other benefits like food stamps. I also heard from another mom that her former nanny asked to be paid off the books for one year (they were normally on the books) so that they could report a lower income on their son's application for financial aid for college.

I never believed I should pay someone to love my child, but I also don't understand how people can offload the responsibility of raising their kid to pretty much anybody. Undocumented worker? Sure! Willing to bilk the US government out of tax dollars? Great! What other ethical foibles are allowable in a nanny?

You are right on point saying it isn't much of a burden to file tax forms. I actually use a company called GTM payroll services to handle all of my payroll and tax needs. I was a little overwhelmed when first hiring my nanny because of all the people saying how hard it is to do everything legally. GTM walked me through every step, they even set up my accounts for federal and state taxes. I pay them, what in my opinion, is a small fee each month and I don't have to worry about much. My employee enjoys perks like direct deposit and her choice of healthcare programs. Being paid on the books is essential for employees like mine, who may need loans and need to be able to prove they have an income. Their staff is friendly and knowledgeable and I would recommend them to everyone with a household employee. Their website is if you would like to take a look. I did, and have been with them since.

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