Just like Christmas is “the most wonderful time of the year”, many Americans undoubtedly think of April – tax time – as “the most painful time of the year.”
I sure do. As a business owner, I not only get the joy of completing reams of paperwork for my accounting and payroll teams (so they can, in turn, create reams more paperwork for the IRS), I also get to play the annual game called “what’s my tax bill?” I can’t think of anything more fun.
This year, for the second time in a row, both my state and federal tax returns included a few extra pages for the “nanny tax”. On the federal Form 1040, that’s known as Schedule H. Most states have their own version, as well.
If you’re not familiar with the “nanny tax”, you’re not alone. Officially called the “Household Employer” tax, it applies to people who directly employ baby-sitters, nannies, or other domestic employees in their homes. It does not, however, apply to situations where a taxpayer hires a business to perform service in his or her home (hence why you don’t need to pay household employer taxes on your plumber).
Few people are apparently aware of their household employer obligations – including a number of presidential nominees over the past few decades who have not been confirmed by the U.S. Senate because of their failure to pay “nanny taxes” many years prior. I’m guessing that of those in the population who are aware of the tax, far fewer actually pay it.
Unfortunately, if you are a security clearance holder, you don’t have that luxury. Failure to pay taxes, in whatever form, is a disqualifying condition under the National Adjudicative Guidelines. It’s really not something to mess with. Every year, I see at least a few cases where the failure to pay some obscure tax (nanny tax, fuel excise tax, etc.) has resulted in major problems for the clearance holder – up to, and including, the loss of their career.
In my situation, I wish my problem was that I employed too many butlers, chauffeurs, and personal chefs. Truthfully, it is far less glamorous: my “household employee” is a babysitter who watches my children a few hours each day while my wife works part-time. And despite the nuisance that is the additional paperwork – and the annoyance that is the extra taxes – I’ve decided to play things on the straight-and-narrow instead of paying under the table.
If you hold a security clearance (or you just don’t want to get nailed by the IRS), I strongly recommend that you do the same.
This article is intended as general information only and should not be construed as legal or tax advice. Consult an attorney regarding your specific situation.
