The first reason - it's the right thing to do. Secondly you may save money by paying nanny taxes. There are two strategies to reduce your nanny taxes: Flexible Spending Accounts and Dependent Care Tax Credits. Last of all....if you don't the IRS will catch you. Your income tax return asks "Did you pay anyone working in your home $1,300 or more?" If you mark off yes because you pay a nanny salary, the IRS looks for your nanny tax payments. If you say no, you compromise your federal income tax return and may be audited.
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