IMGCAP(1)]With the advent of the Nanny Tax in 1994, it became a little more complicated for a family to hire a nanny, housekeeper or senior caregiver.
A number of recent developments have made the hiring of such workers more complicated, according to Kathleen Webb, president of HomeWork Solutions, Inc.
“Employment taxes are expensive, but the fines and penalties of not paying them can cost so much more,” she said.
Two decades ago, unfiled domestic employment tax returns cost two potential U.S. Attorney Generals their jobs, she noted. Moreover, the new sharing agreements between federal agencies, and the growing domestic workers’ rights movement, make it an issue for all families, not just those in the public spotlight, according to Webb.
“It’s important for CPAs to be able to counsel their clients on these matters, because in many cases they have no one else to turn to,” she said.
“The family has to take care of FICA as well as federal and state unemployment taxes,” she added. “One thing they often get wrong is the fact that these household workers are by law hourly employees. You can’t just hire someone to work weekends and pay them, say, $500. You have to do the math.”
The employer may also have to withhold income tax. “Nannies, housekeepers and senior caregivers are employees, and the family is the employer,” she said. “Household workers are hourly employees, and must be compensated for overtime. Even if a family owns 100 percent of a business, domestic employees are not the employees of the business but rather the household. They are entitled to minimum wage under the FLSA [Fair Labor Standards Act].”
Adding to the urgency is the Affordable Care Act, according to Webb. “To qualify for the subsidy that the ACA provides, the worker needs a W-2,” she said. “The SEIU [Service Employees International Union] is funding outreach efforts that are educating workers on their rights, and many states have a domestic worker bill of rights law that hiring families need to be aware of.”
The state domestic worker laws are relatively similar, but with some differences, Webb noted. “In New York, the law requires hourly pay, once a week. You need a written pay rate notice that breaks down hourly and overtime rates. California has similar legislation. Many of the requirements are the same, with little twists here and there. For example, California has overtime based on hours in a day as opposed to hours in a week, and Massachusetts requires paid maternity leave.”
The point is that CPAs in all these jurisdictions should be aware of these requirements and have the resources to point their clients toward to make sure they are on top of their game. “Enforcement cases can get really ugly,” said Webb.
Most households don’t keep time clocks, she noted. “However, the Department of Labor has published apps for the iPhone that helps workers keep track of their hours, and gives geographic location,” said Webb. “Absent any kind of documentation, the benefit of the doubt will go to the worker every time.”
“Broke state unemployment funds have given the states great incentive to enforce the law and collect unemployment taxes, and be default any other taxes,” she said. “For example, a senior caregiver may take care of an elderly parent for three years. When the parent dies, the worker goes to the state unemployment office, and they have no record of the family paying taxes. The state will then not only go after the family for paying their share, they will inform the U.S. Department of Labor and the IRS. The information sharing is a formal program with, so far, 23 states on board. The biggest growth is in the senior care market, as families realize the person working is not an independent contractor, but an employee.”
CPAs who have clients with multiple residences, domestic workers who travel with their employers, and other complexities add layers onto an already cumbersome administrative process, according to Webb.
The solution for CPAs who would rather spend their time on more “high-end” work is to outsource the process to a household payroll expert, she indicated.
“As the year draws to a close, now is the time to strengthen the relationship with your clients and show them how you can add value,” she said. “By understanding and explaining this evolving process, you can solidify your relationship with your clients and free yourself from the seemingly never-ending black hole of payroll taxes.”
