Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, March 1, 1993 TAG: 9303010328
SECTION: BUSINESS PAGE: A-8 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Long
HOUSEHOLD-HELP PAY RULES, OR HOW TO AVOID NANNYGATE
You don't have to hire illegal aliens, as Zoe Baird did, to trip over the complex laws governing how you pay your household help.And you don't have to be a nominee for high government office to come to grief years later for failure to follow the rules.
If you have a baby sitter, a maid or gardener, you are subject to almost as many rules as any small business in handling employees.
Regardless of what you pay for household help, however, the threshold question is whether the domestic worker is your employee, thus triggering your responsibilities.
IRS Publication 926 says people who are employers share two characteristics: They have the right to fire the worker and they supply both the tools and the place to do the work.
"If a worker performs services that are subject to your will and control, as to both must be done and it must be done, that worker is your employee," the IRS said.
It doesn't matter whether you actually exercise this power, according to the publication, only whether you have "the legal right to control both the method and result of the services."
Nor is it relevant whether you call the employee something else, such as an independent contractor, or whether the person works part-time.
You may, for instance, hire someone to care for your child and clean the house while you are away from home.
"You have the right to tell the worker what needs to be done and how you want it done," the publication said. "The worker is your employee."
A worker who comes from an agency, such as a house-cleaning service or a baby-sitting registry, isn't a household employee if the agency collects money from you, pays the worker and directs the work.
But, says the IRS, you are the employer of a sitter you found through an agency if you pay the sitter directly and regulate the work.
The law on household employees has teeth and, even more threatening, the potential for major trouble many years ahead.
For each month a return is not filed, the IRS charges a penalty of 5 percent of the amount that should have been shown on the missing return. There is a maximum of 25 percent.
The IRS charges an additional identical penalty for the separate offense of failing to pay the tax.
Of course, your baby sitter or maid may very well oppose withholding of Social Security because they are, in fact, evading state and federal taxes on their income.
But the employer, not the employee, is responsible for complying with the law.
Also, suppose your housekeeper decides 20 years from now to retire and apply for Social Security. Where will she build the record of enough quarters of work to qualify for benefits?
"It does happen," said Audeline Horne, a spokeswoman for the IRS in Richmond. "People get bills from the IRS" for long-ago household workers.
Those bills are for the unpaid Social Security and Medicare taxes plus the interest and penalties. In such cases, the amounts can be large.
"A lot of it is an honest mistake," Horne said of householders who failed to provide for a worker's retirement.
The money aside, complying with the paperwork is a hassle for anyone who employs household help.
Once you have your employer identification number, you must file tax returns quarterly.
For 1993, you must withhold 6.2 percent of the worker's pay (up to $57,600) for Social Security and 1.45 percent (up to $153,000) for the Medicare tax.
That's a total of 7.65 percent of the worker's salary which the employer must deduct.
Cash contributions toward food, lodging and transportations count as salary for purposes of withholding.
Then you, as the employer, must match the dollar amount of the withholding as your own contribution.
Or, you may contribute both shares of the deductions. But in that case your gift of the deduction portion represents additional salary to the worker for tax purposes, although not for Social Security or Medicare purposes.
You must send these taxes to the government quarterly, along with Form 942. They are due by the ends of April, July, October and January.
At the end of the year, you must give the worker a completed W-2 form.
If the worker's salary is $1,000 or more a quarter, you must pay unemployment insurance. The 1993 rate is 6.2 percent of the first $7,000 of annual wages.
The householder, not the worker, must pay all of this amount. It is due each Jan. 31, along with Form 940 or Form 940-EZ.
You must notify your worker that he or she might be eligible for an income tax refund because of the earned income credit.
If the worker is eligible, he or she must fill out Form W-5. The householder must make payments to the worker from the withheld Social Security, Medicare and income taxes.
Income tax withholding is optional for household workers, and both parties must agree to the arrangement. That requires the worker to fill out a W-4 form and the householder to turn in the money along with Form 942.
Any householder with questions should call the IRS at 1-800-829-3676 and ask for the proper forms along with Publication 926. This phone is used only to order forms by mail.
Commerce Clearing House also publishes a 32-page booklet explaining the tax rules for people who hire household or child-care workers. The cost is $5.
To order the booklet, "What You Ought to Know About Hiring a Domestic," send the money and a note to Commerce Clearing House, Cash Item Department, 4025 W. Peterson Ave., Chicago, Ill. 60646.