In my recent Nannygate post, about the danger you put yourself in just by the act of hiring a nanny, some people complained that the examples I used were people who were less than sympathetic. Because if you break the law and you're rich, that is not okay.
I could give the example that inspired this post, a lovely colleague of mine, but I feel it's not my place to do so.
Therefore, I will link to this article. It's about an average couple who tried to pay their nanny taxes and screwed it up multiple times in spite of expert advice, resulting in large fines, and ultimately resulted in them losing their nanny. They also mention Nancy Killefer, who had to withdraw from her nomination for chief performance officer due to an error in nanny taxes (she tried to pay but made a mistake). Their final words of advice are to use a daycare or hire a professional company to do your taxes.
In summary, people who don't pay under the table are triply screwed:
1) They have to go through an overly complicated process to figure out the taxes, essentially equivalent to that of a real company
2) This process is highly susceptible to error and therefore fines
3) There's a lower selection of nannies since many refuse to be paid this way and there are plenty of families happy to comply for the above two reasons
Please don't say this isn't an incredibly broken system.