House Overhauls ‘Nanny Tax’ to Increase Compliance : Congress: Law that tripped up Zoe Baird is simplified to encourage Social Security payments for domestic help. Senate bill has different provisions.

The House voted unanimously Thursday to overhaul the “nanny tax” that helped torpedo the attorney general nomination of Zoe Baird in the early days of the Clinton Administration.

The aim is to promote wider compliance with a tax law that the federal government estimates is ignored by three of four employers of household workers. By failing to pay the tax, employers effectively cheat employees out of Social Security retirement benefits.

By a 420-0 roll call, the House approved a bill that would raise the threshold for paying Social Security taxes. Now, employers are required to pay the tax when an employee’s wages reach $50 a quarter. The bill would require employers to pay taxes on wages of $1,250 annually and higher.

The change would begin in 1995--if the bill becomes law. First, though, the measure must be reconciled with a slightly different Senate version. Then it must be passed again by both chambers and signed by President Clinton.

The House bill would allow employers of housekeepers and child-care workers to pay the tax either through payroll deductions or once a year when they file federal income tax returns. The law now requires quarterly payments. Employers would also be required to file an annual statement of wages paid on a W-2 form.

The Senate bill would impose Social Security taxes for household workers on wages of $620 a year or more and would exempt payments made to baby-sitters and yard workers under 18 years old.

The failure of Baird and her husband to pay Social Security taxes for two household employees, both of whom were also illegal immigrants, led to the withdrawal of her nomination for attorney general early last year.

Similar “nanny tax” problems plagued other prospective Clinton Administration appointees.

Rep. Barbara B. Kennelly (D-Conn.) said hundreds of thousands of household workers are affected by the failure to pay this tax.

“It’s absolutely wrong that people who work all their lives do not get Social Security benefits,” she said.

Another provision of the bill would bar payment of Social Security and Medicare benefits to persons confined to mental institutions under a court order because they have been found not guilty of a crime by reason of insanity. The prohibition would also apply to those sent to mental facilities who are not mentally competent to stand trial for crimes.