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PERSONAL FINANCE / KATHY M. KRISTOF

Your Money : Employ Domestics? This Tax Change Hits Home

October 30, 1994|Kathy Kristof

In addition, although the new law substantially reduces federal paperwork, employers must still grapple with the copious and confusing state forms and filing requirements. The amount of paperwork varies based on where you live and how much you pay. Generally, though, anyone who has a full-time nanny, housekeeper or, in some cases, gardener, needs to file state income and unemployment tax forms too.

The Changes in Baby-Sitting Taxes

How does the new nanny tax law differ from previous law?

* Old law: Social Security and Medicare taxes must be paid for any domestic worker who earns more than $50 in three months.

* New law: Social Security and Medicare taxes must be paid for any adult employee who earns more than $1,000 annually.

* Old law: Even high school baby-sitters are considered employees, required to pay Social Security and Medicare taxes.

* New law: Part-time teen-age workers are exempted from filing and tax requirements. Only adults, over the age of 18, or those whose primary occupation is domestic work must pay the tax.

* Old law: Federal filing requirements dictate that employers send in quarterly 942 forms and pay employment taxes in four annual installments. The taxes amount to 12.4% of wages for Social Security and 2.9% of wages for Medicare. The obligation is technically split, with the employer paying half and the worker paying half. But the employer is the one charged with sending the payments in to the government.

* New law: In 1995, employers must file annual statements with their 1040 forms, noting their status as domestic employers and listing their employment tax obligations. The tax needs only to be paid once annually, when the employer is filing his or her personal tax return. For 1994, a year-end 942 form must be filed. However, starting in 1998, employment taxes must be paid "ratably" throughout the year either through quarterly estimated payments or employee withholding.

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