Withheld FICA and Medicare for babysitter, didn't have to

You definitely need to refund the withheld amount since that must be
done by the employer.  I'd issue the W-2, showing
zero SS and Medicare wages.

Phil Marti
VITA/TCE Volunteer
Clarksburg, MD

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Am I _required_ to issue a W-2 if in the end no taxes were
withheld?

If not, and if our babysitter doesn't want us to issue one
(not sure why she would), I'd frankly rather avoid the
hassle. It's hard enough jumping through all the silly hoops
that are required to "do the right thing" with household
employees; if there's a hoop I can dispense with, I'm all for
it.

Thanks,

  jik

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Yes, you must file a W-2 to every employee to whom you paid $600 or
more.

http://www.irs.gov/instructions/iw2w3/ch01.html

R's,
John

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I don't think so.

That page says (EMPHASIS added), "Every employer ENGAGED IN A
TRADE OR BUSINESS who pays remunieration, including noncash
payments, of $600 or more..."

In contrast, the Schedule H instructions say, "You must file
Form W-2 for each household employee to whom you paid $1,700
or more of cash wages in 2011 that are subject to social
security and Medicare taxes."

I am just about convinced that the best thing for me to do is
refund the withholding, give her a statement of how much wages
I paid her for the year, and let her report it for herself on
her taxes.

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My wife got two W2's from last year for jobs at which she
earned less than $1,700.

In both cases FICA and Medicare were withheld.

Based on your assertion, "You definitely need to refund the
withheld amount..." we asked them to do so.

Both employers said they've never heard of such a thing
despite issuing many W2's in the past for less than $1,700 in
wages.

Are you basing your answer on some difference you're aware of
between household employers and normal employers?

Or are they wrong?

Or are you wrong? :-)

All the language I've seen everywhere I've looked has said
that the employer _must_ withhold for employees who make more
than $1,700 in wages. I've not found any language which says
that the employer must _not_ withhold for employees who make
less. So I can't find any support for your claim that I have
to refund the withholding.

If I'm not obligated to refund the withholding, then that
begs a different question... what happens to it? Because if I
follow the instructions on Schedule H literally, then I don't
have to pay it to the IRS despite the fact that I withheld
it. And that definitely seems wrong. Is this a "bug" in
Schedule H?

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Yes.  It all goes back to 1993 and "Nannygate."  Before then household workers'
wages were treated just like everybody else's--taxable from dollar one.  When
Congress "fixed" it they threw the household workers under the bus and made
wages below the threshold paid by one employer exempt from SS/Medicare.  The
impact on the employer is obvious, but the impact on the worker is less so.
They didn't want to talk about it, but if your wife checks her SS earnings
statement she'll find that she didn't get any credit for those wages.

Phil Marti
VITA/TCE Volunteer
Clarksburg, MD

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To be clear, my wife is not a household employee. She runs her
own storytelling business, and two of her clients insisted
that they could not pay her as a contractor for the few events
she did for them per year; according to them, she just *had*
to let them put her onto their payroll and send her a W2.

Of course, this means that they pay part of the FICA and
Medicare, so I suppose I shouldn't complain. But the amounts
are so small that I really would have rather had everything be
simple and not have to deal with a mixture of self-employment
income and W2's from multiple "employers".  Ugh.

Having said all of that, are you saying that when Congress
"fixed" the tax code after Nannygate, they decreed that any
time *any* employer, not just a household employer, withholds
on less than $1,700 in wages, the employee loses that
withholding but doesn't get credit for it in his/her SS
earnings?

Wow, that sucks. And that definitely makes me want to refund
the withholding to our babysitter even if we're not
_required_ to do so. If she's not going to get credit for it,
it's just the right thing to do, even if it's more of a
hassle for us, isn't it?

Having said all of that, I'm still not clear on these
questions:

* Am *I*, as a household employer, _required_ to refund the
<$1,700 withholding that Schedule H says I shouldn't have done
(although there was no way for me to know in hindsight that
she wasn't going to earn more than $1,700 from us!).

* Are the employers who paid my wife _required_ to refund the
<$1,700 withholding they took from my wife? If not, are they
even _allowed_ to refund it? Or now that they withheld it, are
they actually required to send it in to the government even
though my wife won't get credit for it?

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Of course they did.  That way they can fraudulently deduct personal
services.  Tell her to keep track of her pocketbook if she
works for them again.  I misinterpreted your original description of
these gigs.  She is not due a refund.


No, it's just domestics who got the shaft. Oddly enough, they don't
have good lobbyists.  Nothing changed for other employees.


Yes.  Look at it this way.  You erroneously took money from her.  Give
it back!


As I noted before, I misinterpreted your wife's situation.  She will
get earnings credit.  All is well on that front.

Phil Marti
VITA/TCE Volunteer
Clarksburg, MD

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If you withheld it, you must pay it in.  26 U.S.C. 7202:

"7202. Willful failure to collect or pay over tax.

"Any person required under this title to collect, account for, and pay over
any tax imposed by this title who willfully fails to collect or truthfully
account for and pay over such tax shall, in addition to other penalties
provided by law, be guilty of a felony and, upon conviction thereof, shall
be fined not more than $10,000, or imprisoned not more than 5 years, or
both, together with the costs of prosecution."

Your only other choice is to seek a refund for a tax paid in error.  Use
IRS Form 843.

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You should send the money to the babysitter so that they can pay the
FICA tax.  I mean you were just putting this money into a separate
account of your own (as forms 941 and such are not required), so you
could as well send it to her.  Either way the IRS gets their ounce of
blood -- either you pay it or the babysitter pays it.


I think you unnecessarily scare here.  This section refers to refusal
to collect FICA and other taxes -- i.e. to not perform withholding.
But if you withheld taxes when you were not supposed to, then this
section does not apply.

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Did you file form 941, 944 and such forms with the IRS to report and
deposit quarterly payroll and federal income tax payments?

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On Mon, 30 Jan 2012 13:50:16 EST, "removeps-groups@yahoo.com"


As I'm sure others have noted, for an individual employing
household help, no such federal returns are required.
--
Bruce Davidson Cantor, CPA, JD
Admitted in Colorado

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On Sat, 28 Jan 2012 22:25:21 EST, jik@kamens.us (Jonathan Kamens)


My belief is that you follow path (a).

Since you withheld Social Security and Medicare taxes, I believe
you should report and remit them on Schedule H and provide a W-2
to the babysitter.

I haven't looked at the Schedule H instructions in a long time,
and they weren't the model of clarity then, but I seem to recall
the withholding obligation triggered by either actual payments
exceeding $1700 or payments reasonably expected to exceed $1700
for the year.
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Bruce Davidson Cantor, CPA, JD
Admitted in Colorado

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I think (b) is better.  In this case the withheld money was put into
the taxpayer's own account so that they could have the money at the
end of the year when they file Schedule H.  It's not like they
deposited the money with the IRS through form 941 and such, so they
could just send the money to the babysitter.

Generally it makes no difference but (b) may result in less tax.
Suppose the babysitter has a second Schedule C job that resulted in a
loss of about $1300.  Then the net gain from self-employment is
1700-1300@0 and no social security tax at all is due (it is only due
if you make more than $450 or so).  Also if the babysitter files a
Schedule C they can deduct medical insurance premiums.  But with the
Schedule H approach I'm not sure they can do this.

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The first question on Schedule H, line A, is, "Did you pay any
one household employee cash wages of $1,700 or more in 2011?"
If the answer to this question is No, which it is in my case,
go to line B.

Line B is, "Did you withhold federal income tax during 2011
for any household empmloyee?" If the answer to this question
is No, which it is in my case, go to line C.

Line C is, "Did you pay total cash wages of $1,000 or more in
any calendar quarter of 2010 or 2011 to all household
employees?" If the answer to this question is Yes, which it is
for me, skip lines 1-7 and go to line 8.

Lines 1-7 are the ones in which you report on FICA and
Medicare you are obligated to pay. The form itself is telling
me to skip them. So I can't pay the FICA and Medicare I
withheld from our babysitter without directly contravening
the form's instructions.

On the other hand, the Schedule H instructions say nothing
about Lines A, B and C on the form (alas, they also say
nothing about what you should do after the fact if you've
withheld FICA and Medicare on wages of <$1,700). Maybe I
should ignore them and do as you suggest (which would require
overriding TurboTax)?

But if my babysitter isn't going to get credit for it in her
SS earnings, wouldn't that be evil?

This sort of sucks. :-(

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