What I’m Working On: Professor Emily Satterthwaite, Tax Scholar

June 25, 2024

Prof. Emily Satterthwaite

For Professor Emily Satterthwaite, the tax system isn't merely a matter of dollars and percentages — it's at the crux of the laws and policies that shape equity at all levels of society.

“Taxes represent obligation and deservingness and all sorts of fairness principles,” says Satterthwaite, who since 2021 has taught courses in tax law at Georgetown Law following more than a decade at the University of Toronto Faculty of Law.

Having previously studied the impact of tax policy on entrepreneurs and the self-employed, Satterthwaite is now examining the attitudes of nannies — who often work long hours for low, off-the-books pay — toward their employment status and tax obligations. Her findings will be published in “Taxing Nannies,” an article forthcoming in the Iowa Law Review.

“We were surprised to learn that no one had studied the nanny perspective,” said Satterthwaite, who co-authored the article with Professor Ariel Jurow Kleiman of Loyola Law School and Professor Shayak Sarkar of the University of California, Davis School of Law. “The motivation for the project came from seeing the catch-22 that families and nannies face when it comes to tax compliance and wanting to know: What do nannies think?”

Below, Satterthwaite discusses the trio’s findings, the factors affecting nannies’ tax preferences and the link between taxation and equity.

Why are taxes an issue for nannies and the families who hire them?

Many nannies may want to avoid taxes and receive cash up front. At the same time, for many families, the cost of childcare is also a huge economic burden. They are often hiring their first-ever household workers, so they are unfamiliar with employer tax liability. So there’s incentive for both parties to avoid the added financial burden of paying and reporting taxes.

For “Taxing Nannies,” you conducted a survey of nannies, analyzed nannies’ online posts and interviewed subject-matter experts. What did you find?

We had four key takeaways. The first was that surveyed nannies expressed a strong preference for and experience with formal, or “on the books,” employment. The second was that a crucial subset of nannies, often undocumented and working informally or “under the table,” is missing from the literature and surveys, including our own. We weren’t able to recruit undocumented nannies to talk to us, but based on our expert interviews, we understood that they would likely have no interest in being formal employees, since these workers won’t feel safe reporting their wages if they fear deportation.

The third takeaway was that the formal/informal dichotomy that we talk about is inaccurate. Nannies are often paid partially above board, and partially not. For example, someone might receive overtime pay in cash in order to remain eligible for income-based benefits such as Medicaid. Most commonly, families will improperly report nannies’ pay as independent contractor compensation rather than employee wages. That puts additional burdens on nannies, who are then obligated to pay self-employment taxes and often excluded from benefits such as unemployment insurance.

That led to the final takeaway, which is that problems in our tax, immigration and public-benefits systems are affecting how people classify and report their nanny relationships. If we don’t address these systemic problems, we risk harming the most vulnerable nannies while also likely failing to increase tax compliance.

This project uses an eclectic set of research methods to study the real-world effects of tax law and policy. How did you decide on an approach?

We started the expert interviews and analysis of posts from the online forum Reddit after struggling to recruit survey respondents. On Reddit, it was revealing to see what people’s questions and struggles were. Most posters wanted to be employees and wanted to comply with the law — many expressed a fear of being audited or otherwise landing in the crosshairs of the IRS — but were getting pushback from their employers.

What are you working on next?

I’m working on a project about public attitudes toward joint filing with Professor Erin Scharff of Arizona State University. The so-called marriage penalty that happens when equal-earning spouses pay more income tax as a married couple filing jointly than they would as individuals was erased for all but the highest earners following the Tax Cuts and Jobs Act of 2017. But couples in which one spouse earns significantly more than the other still benefit from marriage bonuses, meaning they pay less income tax as joint-filers than they would as unmarried individuals. To me, that is very odd. Because the presumption of the law is typically in favor of equality, not subsidizing disparities of unequal-earning spouses. The question that Professor Scharff and I have is: Are people aware that joint filing benefits disparate earners in this way, and if so, do they support it?

Why look at issues like joint filing or nannies’ tax reporting through an equity lens?

Tax is all about equity. Income tax especially (but also payroll tax) is about collecting resources from those who have the ability to contribute in order to support those that have less ability to contribute. To the extent that the system is failing to do that — and is actually burdening those who have less ability to contribute either compliance-wise or cost-wise — that is the first place to call attention to the problem. Because the tax system is not meant to work like that.

Part of the mission of “Taxing Nannies” was to examine nannies’ attitudes and experiences as a microcosm of this issue. Many workers, including nannies, aren’t benefiting from a tax system designed to mitigate their vulnerability because they are outside of it. They’re under the table. The table is built for them — but they can’t get to it.