More Individuals Evade ‘Nanny Tax,’ a Risky Strategy in a Tough Economy

A growing number of individuals who hire in-home child care workers and other domestic help apparently are evading the so-called "nanny tax."

Despite U.S. Department of Labor data showing a growing number of domestic employees, the Internal Revenue Service says there was a 10 percent drop in the number of household-employment tax filings during the five-year period ending in 2006, reports the Wall Street Journal (sub. req.).

"Since 1996, filings are down 26 percent, to 225,441," the newspaper writes.

Evading taxes is never a good idea, the WSJ points out. But it's a particularly risky strategy now, since nannies and other household employees are more likely to file for unemployment benefits if they can't find work in a struggling economy. Such filings increase the chance that tax regulators will note the lack of nanny tax payments.

Those who pay a household employee more than $1,600 annually are required to pay Social Security and Medicare taxes, federal and state unemployment insurance and other taxes on their behalf, the newspaper notes.