Our Nanny is from the Philippines. She has been working with us in New
York for 3 years. We have never inquired about her immigration status.
She recently told us she was applying for a green card and asked if we
would sponsor her. We like her very much and would happily sponsor
her. However, are we exposing ourselves to any legal prosecution given
that, as we recently learned, she has been in this country working for
us without documentation? Will the IRS demand payment of back taxes?
Can the INS take any action against us?

Hello and thank you for your interesting question.

The only route that offers any hope for your Nanny to obtain permanent
resident (green card) status is if she has family members already
resident (and in some cases they must be naturalized citizens) in the
US who are sponsoring her application.  This aspect of sponsorship is
an economic guarantee.  Even if you are willing to give her such a
guarantee, it is not clear that you are eligible to sponsor her, and
you are right in thinking that you may hear from the IRS before the
process is over.

[And I hope she's aware that unless she is eligible for a work permit,
which is doubtful, her application could well lead to her being
deported.]
 How Do I Get a Work Permit
 http://www.immigration.gov/graphics/howdoi/ead.htm

If you'll read this page on 'immigration paths' you'll see why the
family route is the only possibility:
Who May Apply to Become a Lawful Permanent Resident While in the
United States?
http://www.immigration.gov/graphics/howdoi/lpreligibility.htm#k

It's clear that your Nanny cannot expect to be approved for immigrant
status of any sort based on her employment with you:
Who is Eligible for Employment Based Immigration?
http://www.immigration.gov/graphics/howdoi/ImmStatEmp.htm#elig

Nor can she rely on the lottery, which is closed to persons from the
Philippines:
2004 DIVERSITY IMMIGRANT VISA PROGRAM 
http://travel.state.gov/DV2004.html

Furthermore, as she is already in the United States, she may only
apply to change her status to that of a lawful permanent resident
after a visa number becomes available for her--this is one way she can
apply to secure an immigrant visa number.
http://www.immigration.gov/graphics/services/residency/family.htm#anchor365711

Application Procedures:
Becoming a Permanent Resident While in the United States
http://www.immigration.gov/graphics/howdoi/LPRApplication.htm

Her family members will use form I-864 to provide the required
economic guarantee
http://www.immigration.gov/graphics/formsfee/forms/i-864pkg.htm

Which gets us back to your being one of her sponsors:
General Information & Frequently Asked Questions
Affidavit of Support (Form I-864)
http://www.travel.state.gov/i864gen.html

Since she's not going to be taking the employment route, it's not
clear that you even qualify to be a sponsor.  Nor I'll bet do you want
to be.

However she applies, she will certainly need to file income taxes for
the money you've paid her in the past.
http://www.formdomain.com/checklis.htm

And although that doesn't automatically mean that you'll be audited
too, it could happen.
"Some children are cared for in their own home by a paid housekeeper,
maid, governess, au pair, or nanny. The home caregiver is generally
paid as a household employee. The parents show the wages on Schedule H
attached to their Form 1040."
http://www.irs.gov/businesses/page/0,,id=7016,00.html

Search terms used:
faq "green card" undocumented sponsor
family permanent residenct site:.gov

Thanks again for letting us help with your question.  If you find any
of the above unclear, please request clarification.  I would
appreciate it if you would hold off on rating my answer until I have a
chance to reply.

Sincerely,
Google Answers Researcher
Richard-ga

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Request for Answer Clarification by bradford97-ga on 30 Aug 2003 06:14 PDT

Thank you. My question might have been unclear. The green card
process, as it realtes to her, is not the heart of the question. In
fact, I was asking what the implications are to me. This may help:

Our nanny indicated she has a sponsor (through marriage) and has
already satisfied nearly all the conditions for getting a temporary
green card. At her INS interview, she was told that her official
sponsor (who is retired) did not have enough eligible income. She has
asked me to provide an Affidavit of Support (including my tax
returns), acting as co-sponsor. My income would be sufficient to allow
her to complete the process. In short, other than that, her aspect of
the green card process is not in doubt.

The question is, how could she (or I) have filed taxes for the years
in which she was undocumented? It seems like a catch 22? She now does
have a social security card for work purposes. As an employer, what
taxes am I responsible for? I believe it is just the employer-paid
portion of her social security? Am I liable if she does not pay her
income taxes (for past years or in the future)?

---

Clarification of Answer by richard-ga on 30 Aug 2003 21:12 PDT

Hello again.

If you are willing to undertake the possible financial responsibility
that comes from giving an affidavit of support, then your question
really is the likelihood that you will be audited and the consequences
if you are.

It's always hard to gauge the likelihood of being audited, but there
is a good chance that the immigration people will refer the situation
to the IRS.  The Nanny's application, even without your affidavit of
support, will reveal that she worked for you and whether she paid
income taxes on her earnings.  And giving the affidavit of support
does make it more likely that you will be audited.

So what were your obligations and what now is your exposure?

"If you pay anyone cash wages of $1,300 or more in 2001 for work
around your home, you need to pay employment taxes on those wages.
This includes babysitters, cleaning people, housekeepers, nannies,
private nurses, yard workers, etc., unless they're self-employed. You
pay your household employment taxes by completing Schedule H
(Household Employment Taxes) and attaching it to your income tax
return."
http://www.quicken.com/taxes/investing/nannytax/

Here are the payroll taxes you're obligated to pay:
"Social Security. 6.2% is withheld from the employee and matched by
you for up to $80,400 in wages (up from 76,200 in 2000). These taxes,
mandated by the Federal Insurance Contributions Act, and known as FICA
on your payroll check, provide for a federal system of old-age,
survivors and disability insurance for workers and their families.
Medicare. 1.45% is withheld from the employee and matched by you with
no limit in wages. These taxes pay for hospital insurance when you
reach age 65.
Federal unemployment taxes. You pay 6.2% on the first $7,000 in wages,
but this amount is reduced by a credit of 5.4%, resulting in a net tax
of 0.8% if you paid all your required state unemployment/disability
taxes.
State unemployment and disability taxes. You are responsible for the
payment of both your share and your employee's share. If you don't
withhold, you are still responsible for these taxes."
MSN Money Central
http://moneycentral.com/content/Taxes/P43440.asp?Printer

The good news is that you are not required to withhold federal income
tax from wages you pay a household employee. You would withhold
federal income tax only if your household employee asks you to
withhold it and you agree. And in that case the employee must give you
a completed Form W-4, Employee's Withholding Allowance Certificate.
http://www.file-tax-online.com/pubs/p92604.htm


I call this good news because since there is no income tax withholding
requirement, it is not possible for the IRS to hold you responsible
for any income that your Nanny may have failed to report.

So your exposure is limited to the payroll taxes, interest and
penalties on the payroll taxes that you failed to pay:
"What are the penalties involved with late filing of withholding
taxes?
The IRS calculates penalties for late filings and late payments.  
• Late filing: for each whole or part month that a return is late,
there is a penalty of 5% of the unpaid tax due with that return. The
maximum penalty is 25%.
• Late payments: for each whole or part month the tax is late, a
penalty of .5% of the amount of the tax generally applies. The maximum
penalty is 25%.
Each state has different penalty schedules for late filing of income
tax withholding and unemployment taxes. For example, Illinois imposes
a minimum penalty of $50, plus 2% interest per month. The state of
Connecticut charges either a $50 penalty or 10% of the unpaid taxes,
whichever is higher. Clearly, filing nanny taxes late is very
expensive."
The Nanny Tax Company
http://www.nannytaxprep.com/menu/frequentlyaskedquestions/#How%20can%20the%20IRS%20catch%20me%20if%20I%20haven’t%20paid%20nanny

An attorney or accountant will advise you at this point to amend your
income tax returns for the past three years and report the omitted
taxes (if you qualify, you can also take child care tax credits on
those amended returns which may offset some of the costs).
Given the circumstances, that would be the right and prudent thing to
do.

I hope this helps you make your decision.  Again, if you find any of
this unclear or need something further, please let me know.

Google Answers Researcher
Richard-ga