Finding the Right Threshold to Use in New ‘Zoe Baird Bill’
So you like to go out on weekends and you often hire the boy or girl next door to baby-sit for your children. In that case, you have two choices:
Option No. 1: File a form with the Internal Revenue Service providing for payment of your sitter’s Social Security taxes and--if you’ve paid him or her more than $50 in a three-month period--file a quarterly wage disclosure form. Also fill out any and all state forms, where applicable--and don’t forget to supply your sitter with copies B, C and D of the W-2 form, while forwarding copy A to the IRS no later than February of the year after you availed yourself of the services.
Option No. 2: Break the law.
Zoe Baird, President Clinton’s first choice for attorney general, chose the second course. In her case, the rest, as they say, is history. But Baird stretched the point by also violating immigration laws when she hired a pair of illegal immigrants for child care and driving duties.
But the often misunderstood law that her celebrated case drew attention to technically requires employers to pay Social Security and Medicare taxes for anyone who is paid more than $50 in a calendar quarter--regardless of whether that person is a professional housecleaner or just the kid next door hired to baby-sit or mow the lawn.
That is, however, unless a serious effort on Capitol Hill succeeds in revising the law by raising the threshold.
BACKGROUND: The law, which even the IRS admits is more often ignored than obeyed, was enacted in 1950, when the $50 threshold seemed reasonable. The goal was to extend the protection of Social Security benefits to domestic workers.
Everyone agrees that the inflation of the last four decades has rendered the threshold hopelessly out of date. Congress twice last year tried to change it by raising the trigger from $50 per quarter to $300 annually and greatly simplifying the reporting requirements for employers. Instead of having to file quarterly forms, employers would have to file once a year at tax time.
The reform was twice passed by Congress, but failed to become law because the tax bills to which it was attached were vetoed by President George Bush. This year, thanks in part to the Baird controversy, another effort to reform the law is percolating in the House Ways and Means Committee.
“Ms. Baird has done more to publicize the law which provides Social Security coverage for domestic employees than either the IRS or the Social Security Administration have ever managed to do,” noted Rep. Jim Bunning of Kentucky, the ranking Republican on the Ways and Means’ Social Security subcommittee.
THE DEBATE: While everyone agrees that the $50 threshold is too low, the current debate centers on the amount by which it should be raised. Some say the threshold should be $1,000 per year, while others want to go as high as $1,750, which would equal the current threshold if annualized and indexed for inflation since 1950. Still others say that is too high because it would miss many domestics who work once a week for several different employers.
“The issue here is figuring out how to separate the teen-age baby-sitters and the people who cut your lawn from the people who clean your house,” one Ways and Means staffer said. “We want to make sure the threshold is low enough to protect low-income people without making things too burdensome on employers.”
THE OUTLOOK: Most likely, the $300 threshold, or something close to it, will prevail because it enjoys the support of Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) and has the added advantage of already having been approved by Congress.
The Ways and Means Committee has held a hearing on the issue, and as soon as members agree on a threshold, they will look for a legislative vehicle to move the reform to the floor. Most likely, it will be Clinton’s stimulus and investment package.
“We’ll be looking for the first big train that leaves the station, and the stimulus package is a prime candidate,” one congressional aide said.
And this time, what is being universally referred to as the “Zoe Baird bill” is certain to be signed into law.
