‘Nanny Tax’ Clears Panel; Would Simplify Payment

The Senate Finance Committee on Tuesday addressed the “nanny tax” that has bedeviled the Clinton Administration, approving the first revisions in 44 years to laws governing the payment of Social Security taxes for household workers.

The bill, approved on a voice vote, simplifies the payment procedures and raises the wage level at which the taxes must be paid from $50 per quarter to $630 a year. In addition, people under age 18 hired to do household chores or baby-sitting would be exempt from the Social Security tax.

The legislation also would allow employers to pay the tax once a year, as part of the federal income tax return, rather than in quarterly payments. And employers would be required to provide an annual statement of earnings on a W-2 form.

The bill now goes to the full Senate, where its chances for passage are excellent, aides said. A similar bill will be introduced in the House shortly, and passage there is considered a virtual certainty, according to Rep. Andrew Jacobs Jr. (D-Ind.).

Failure to pay timely Social Security taxes on household employees was a factor in the withdrawal of the nomination of Zoe Baird, President Clinton’s first choice for attorney general.

Other potential nominees were not appointed, partly because they had not paid Social Security taxes on domestic workers; some high Administration officials paid the taxes retroactively to comply with the law.

The aim of the bill, according to Sen. Daniel Patrick Moynihan (D-N.Y.), chairman of the Finance Committee, is to provide greater Social Security coverage for domestic workers.

Now, only about one in four employers of household workers pays the taxes designed to provide government pensions for those who provide child care or other domestic help.

“This issue has been a rather large problem for the Administration, starting last year with Zoe Baird and ending with Bobby Ray Inman,” Moynihan said. Inman, who withdrew after being selected as defense secretary, acknowledged that he had not paid Social Security taxes for a domestic worker.

The bill also would allow employers to pay federal and state unemployment taxes when they file their annual federal tax return, simplifying paperwork and eliminating quarterly reports.

Generally, federal and state unemployment insurance taxes must be paid when a domestic worker earns more than $1,000 in any quarter.