“I’m sorry … but I can’t,” she told me over the phone. My heart sank. I was confident she’d take the job. Quickly, I went into negotiation mode, “But wait, can we talk about the pay? Do you need more to … ” She said no before I could finish. “I just can’t take a job (that pays) over the table. It’ll mess up my housing. I won’t be able to stay in my apartment. I’m sorry. I’ve already taken another job.” I ended the call. At that point, four years ago, I had spent over two months trying to hire a nanny. The process, with its almost daily interviews and phone screens, had become a part-time job. I had carefully nurtured my career, working at full-speed, for two decades. At the time, I was pregnant with my second child, and my entire career was at risk because I couldn’t find a nanny—at least, one willing to be paid legally.
It’s estimated that less than 10 percent of 2 million domestic workers and the families who employ them pay employment taxes. This leaves the overwhelming majority, primarily women (98 percent) and many immigrants, out of the tax equation that funds basic benefits. Meanwhile, most of them work under the table so they can receive benefits they need badly to supplement their very low wages. But under-the-table pay perpetuates the invisibility of people making an incredibly important contribution to our lives and puts them in a cycle of low pay and scarce benefits.
There is, however, a hidden opportunity to provide help to our caregivers and the families who employ them. Right now, these under-the-table arrangements are creating a “tax gap”—billions of dollars in additional funding that would be available to support caregivers, if the majority of families and their caregivers paid into the system.
After I interviewed over 60 potential nannies, and despite my offering paid benefits and overtime, a surprising number declined because being paid ‘over the table’ would affect their ability to qualify for government subsidies. These included everything from women who were earning part-time degrees and qualified for tuition assistance to those who needed affordable health care and housing for their own families.
Tax supports to help families pay for this child care are woefully inadequate, and caregivers’ pay seldom reflects their vital role in our economy. Yet the costs of child care, housing, and healthcare have risen sharply for both parties. This pressure hurts everyone. Caregivers are forced into a sea of poor choices to stay solvent in the short term and opt-out of the long-term safety nets inherent with legal pay.
“Domestic workers have throughout history been laboring in a shadow economy, outside of the realm of workplace protections or benefits. In many ways, it’s a ‘Wild West’ environment where nothing is transparent or standardized, and the work is isolated,” said Ai-jen Poo, executive director of the National Domestic Workers Alliance and co-director of Caring Across Generations. Live-in domestic workers, for instance, have been exempted from most traditional labor protections, including overtime rules set by the Fair Labor Standards Act. And some domestic workers are even excluded from minimum wage laws. In the absence of livable wages, a lack of awareness of benefits from working above-board, and many employers who simply refuse to pay employment taxes, the flexibility working under-the-table offers becomes a given.
“For many domestic workers,” Poo said, “working under the table isn’t a choice. It’s a reality that reflects the way that we have failed to recognize and protect care work in our culture and economy.”
Most parents, will stretch the outermost boundaries of our budgets, to afford the best possible child care and show caregivers that we do value their work. Although many professional nannies are paid well above minimum wage, they may not receive a living wage, especially in major cities with high expenses. The savings rate for Americans, which has been dropping steadily, has reached an all-time low at an estimated 2.6 percent. Few families, including those of caregivers, have the resources to manage unplanned expenses—like a health crisis or job loss.
In an industry where low, “under-the-table” pay is the norm, caregivers perceive shielding their limited income from tax is beneficial. However, the current safety nets they could access as taxpayers are meaningful (though they vary by state and city): these include protected maternity leaves, paid sick days, overtime, disability insurance, unemployment insurance and, of course, retirement income from Social Security. Inadvertently, caregivers who opt out of legal pay, put their security at greater risk by losing access to these key workforce perks. This is a trade-off they shouldn’t have to make. Improving the pay and benefits they can receive, and boosting their employer-families’ abilities to afford these perks would close this gap. And tax compliance could be the way to afford all this.
Fewer than 200,000 families paid “nanny taxes” in 2015, according to IRS records. Tom Breedlove, an expert in domestic payroll and taxes, said, “The number of compliant families has been on a steady decline for the past two decades. It’s safe to say they now represent a small fraction of the industry.” When I asked about the implications of the lost tax revenue, he said, “I’ve seen conservative estimates of $5 billion per year, and that’s only the federal tax component. The states are also missing significant tax revenue from this mostly-underground industry.”
The estimated “gap” from the lost tax revenue is a combination of the federal and state employment taxes typically paid by employees (Social Security, Medicare, and income taxes) and employers (in addition to Social Security and Medicare, they must pay federal and state unemployment taxes.) Imagine if just a portion of this revenue were used to reimburse families for more of their child care expenses and to provide caregivers access to better benefits than they get currently with their under-the-table jobs.
Despite periodic attempts at reform by lawmakers, the dependent care tax credits and flexible spending account (FSA) thresholds for working families haven’t been updated in almost two decades. As a result, the tax savings haven’t kept up with inflation and no longer provide meaningful assistance with the rapidly-rising cost of care. It’s no wonder then that the tax gap for child care–givers has grown and compliance is down.
Some states have passed domestic workers’ bills of rights to help address the unevenness in labor law protections available to caregivers. By promising protections from harassment and things like consistent income, a bill like this on the federal level could help encourage more families and domestic workers to work within the system. The National Domestic Workers Alliance has been a main driver of these efforts.
There are countless studies about the profound difference a loving, patient caregiver has on the lives of children. The advantages of quality child care extend well beyond each family, but to society. Child care is physically and emotionally demanding work. Doing it well, requires presence and patience. According to a report from the World Health Organization’s Department of Child and Adolescent Health Development, “Chronic stress, associated with poverty and other environmental challenges, can also disrupt the capacity of adults to give loving care.” Access to quality health care and housing are not luxuries: They underpin someone’s well-being and stability, allowing them to extend themselves as caregivers.
We need to recognize and cultivate talented professional caregivers, by transforming care into a financially viable, long-term career option for the millions of women who choose it.
Ultimately, I found a wonderful, professional nanny who was willing to work with me in the official channels. Once she became comfortable with my oldest child and our home, the stress and distraction that plagued my daily life for months of searching disappeared. When she and her husband needed a car loan, and later a mortgage, they were able to include her income from working with our family on their applications. Her receipt of benefits—paid sick or personal days, vacation, overtime, and the contributions to her workers’ comp, unemployment, Social Security, and disability insurance—gave us both peace of mind. But these benefits are only helpful if workers qualify for them in the first place. That means we have to change the current caregiving landscape to reflect the real value of the work, and treat them more like other workers in this economy.
“We have both devalued work that is historically associated with women, and continue to devalue the lives of the women of color who do the work. Until we as a society value care work, and make sure that all workers are protected by our laws, we will continue to see inequities and crises in the industry as a whole,” said Poo.