Content area
Full Text
On Oct. 22, 1994, President Clinton signed into law The Social Security Domestic Employment Act of 1994. The main purpose of this Act was to simplify the "Nanny Tax" employment tax issues that apply to employers of domestic employees such as house keepers, nannies, gardeners or chauffeurs. The old Nanny Tax laws, which dated back to 1950, were outdated and difficult to comply with, resulting in widespread noncompliance. The noncompliance issue was raised in 1993 when the nomination of Zoe Baird as attorney general failed primarily because of her admission that she had not properly withheld and paid employee taxes on her domestic employees.
Benefits to Employers
The simplification of the Nanny Tax provisions should benefit both those who employ domestic workers and the employees themselves. For employers, the 1994 Act made three major changes. First, the dollar amount of wages that must be paid to an employee before the employer is required to pay Social Security taxes was increased. Retroactive to Jan. 1, 1994, the wage threshold that must be exceeded is $1,000 per year. By raising the threshold from wages of $50 per quarter (under the old laws), it was hoped that the legislation would greatly increase the rate of reporting of domestic workers' wages. To ensure that the $1,000 threshold does not quickly become outdated, the threshold will be adjusted annually for inflation and rounded to the nearest $100 increment, starting in 1996. Because the wage threshold change was made retroactive to January 1, employers who paid domestic employee wages of less than $1,000 in 1994 are eligible for a refund of any Social Security taxes paid. Employers are still required to file Form W2 for employees earning less than $1,000.