Paperwork for Domestic Help a Full-Time Job
The case of Zoe Baird, the erstwhile attorney general nominee, has created virtual panic among working parents who hire out for domestic help. Many are surprised to learn that they are expected to abide by strict rules governing employers.
Immigration law, for example, says you can’t hire undocumented workers. Tax laws say that, if you’re an employer, you must file a plethora of tax forms--regardless of whether your workers are legal or illegal.
Attorneys and accountants say they have been flooded with phone calls since the Baird controversy erupted. Some of the parents say they don’t mind breaking immigration rules, but they’re surprised and horrified to learn that they might run afoul of the IRS.
“I never thought of myself as an employer,” said one Los Angeles mother of four who has had full-time help for more than three years. “I know it sounds naive, but it never occurred to me that all those (employer tax) rules applied to my family. It’s not like we have a business.”
Indeed, in the aftermath of the Baird controversy, millions of Americans are learning about some of the nation’s least understood and most commonly broken tax rules. Some are shocked to find that they’re required to file volumes of forms--simply because they have a 13-year-old neighbor baby-sit a few nights a month. Millions of Americans may inadvertently be tax scofflaws because of these obscure rules, experts say.
In a nutshell, the IRS rules say that if you pay a baby-sitter or another “employee” more than $50 in any calendar quarter, you are technically required to get an “employer identification” number and fill out at least two employer tax forms.
If you pay a child-care provider or a live-in maid more than $1,000 a quarter, your reporting requirements shoot up to roughly six forms annually--four to report quarterly wages to the government, one to report the wages to your worker and one to determine your unemployment tax obligations. And that doesn’t include the form you may have to complete and send to the IRS to say that you’re sending some forms.
What’s more, that’s only the federal forms. Chances are you’ll need to fill out at least one or two state forms as well. And, in certain circumstances, there may be another form required to set up a trust fund tax credit.
Altogether, you’re dealing with upward of 40 pages of forms and instructions that will take you more than 20 hours to complete each year. Notably, that’s about twice the time it takes to complete the standard individual income tax return, Form 1040.
“The amount of paperwork you have to do (when employing a domestic worker) is phenomenal,” says Michael A. Maggio, a Washington immigration attorney who says he’s now practicing “Zoe Baird law” because of the volume of calls he has received in the last two weeks.
Nevertheless, once you get the hang of it, filing the appropriate paperwork is not difficult--just time-consuming, says Gregg Ritchie, a partner at the Los Angeles accounting firm of KPMG Peat Marwick.
So what do you have to do to comply with the federal tax law?
Most experts tell you that the first step is the form SS-4, which is an application for an employer identification number. You need an EIN to file your quarterly tax forms, the IRS says. But, as a practical matter, the IRS will assign you an employer number if you don’t have one, says Ritchie. All you have to do is write “none” in the space asking for this number when you send in the quarterly wage statements.
However, if you want to be formal, filing the SS-4 is a snap. The form is largely multiple-choice and self-explanatory. Fill it in, sign it and send it to the address listed in the instructions. They’ll send you back your number.
Step 2: Form 942 is the employer’s quarterly tax return for household employees. Here’s where you disclose how much you paid during the three-month period and determine the appropriate amount to send to Social Security and Medicare by multiplying the cash wages by 12.4% and 2.9%, respectively. Technically, the employee pays half the tax and the employer pays half.
You’ll need to complete four of these annually if your worker is employed all year.
Step 3: If you pay more than $1,000 in wages in any given quarter, you must file a Form 940 or 940-EZ. This determines how much federal unemployment tax is due. Most people can fill out the simplified version, the 940-EZ. But if you pay wages in Michigan, or don’t pay state unemployment tax on the same wages as you pay federal unemployment tax, or if you moved to a new state and employed workers in both places, you have to fill out the long form.
If you’re stuck with the long form, you may want to get help from a tax accountant. It’s a bear. Even the IRS expects people to spend at least 13 hours grappling with this one.
Additionally, if you owe more than $100 in unemployment taxes in any given quarter, you may have to fill out a Form 8109 to give to your bank. That’s to set up an unemployment insurance trust fund, Ritchie says.
Step 4: At the end of the year, you need to fill out a W-2 form for each worker, just like the one you get from your employer. The main sticking point on this form is what you say under “employee’s Social Security number” when your worker is undocumented. The answer: SSA-205(c). This is IRS shorthand for “doesn’t have one and can’t get one.” The IRS automatically assigns a dummy number just to process the return.
Does that trigger the Immigration and Naturalization Service to the fact that you and your worker are breaking the law? Debatable.
The IRS doesn’t directly share information with the INS. But it does share with the Social Security Administration. And the Social Security Administration shares with the INS.
But the INS doesn’t usually use this information to track down undocumented workers, experts say.
If you’ve hired more than one employee during the year, there’s a fifth step: filling out a W-3 “transmittal form.” You just need to add up the boxes on your various workers’ W-2 forms, fill it in, date, sign and you’re home free. Until the next form is due, that is.
