Don't even think about making that hush-hush cash payment to your child's nanny.
On average, families in the U.S. pay child care workers $556 each week — nearly $29,000 a year, according to Care.com. More than half of families report spending at least 10 percent of their household income on child care.
Though it's easy to agree on a payment schedule with your nanny and hand him or her the cash, you're risking a reprisal from the Internal Revenue Service. In extreme cases, you face the possibility of prison time.
You might remember the so-called Nannygate controversy back in the 1990s surrounding President Bill Clinton's picks for attorney general, Zoe Baird and Judge Kimba M. Wood. Both women came under fire for the way they hired and paid their child care helpers. Baird, in particular, failed to pay Social Security taxes for her child's care provider and her driver. Neither one got the attorney general job.
And now Andy Puzder, President Donald Trump's nominee to run the Labor Department, stated that he and his wife had employed an undocumented housekeeper. The couple said they paid back taxes to the IRS and the state of California.
"If you're paying someone to provide you with services, they have to report it as taxable income," said Tim Steffen, director of financial planning at Robert W. Baird, a wealth management firm.
"If you don't pay Social Security and Medicare taxes for your employees, you're subject to penalties and fines," he said. "It can be considered a felony if you don't pay and this can lead to prison time if it's egregious."