The Price of Obeying the Law

By John Greenwald

For millions of Americans who hire even occasional household help, the rules that tripped up Zoe Baird can be the laws from hell. The requirement that immigrants have U.S. working papers is just part of the problem. The real burden for people hiring anyone, from nannies and baby-sitters to once-a-week household help, for more than $50 in a three-month period is the taxes and the blizzard of paperwork that also come through the door. So stringent are the legal requirements that the Internal Revenue Service estimates that no more than one-quarter of American families with household help bother to obey the law -- and that assessment is probably generous.

Such honor-bound people typically pay more for help than their tax-dodging neighbors, and their workers pocket less money. For example, a family that pays a nanny $250 a week must add $15.50 for Social Security taxes. The worker would likewise pay $15.50, plus $3.62 in Medicare taxes, not to mention federal and state income taxes. "It's very expensive to be on the books," says a New York City mother who does not pay the Social Security taxes. "I already pay $1,200 a month in child care. How can I pay more?"

Paying the taxes is only part of the hassle. Conscientious families must fill out five federal forms a year on behalf of each worker. State and local filings can add to the burden. Overwhelmed families may seek help from accountants, who will gladly handle the paperwork for about $500 a year for a child-care worker. But even professionals can find the task grueling. Says Donald Rocen, a tax manager in the Washington office of accounting firm Coopers & Lybrand: "I wanted to do the right thing, and when I hired a cleaning person for $50 a day once every two weeks, I complied with all the regulations. But it was such a pain that I decided to use a cleaning service instead."

The IRS acknowledges that the red tape has got out of hand. Former IRS Commissioner Fred Goldberg called in 1991 for a single federal form to replace the five documents that are required. And instead of having to write out separate checks, he said, families with household help should be able to pay the taxes through their own withholding schedules or estimated-tax payments. But while Goldberg predicted that such changes would "result in a significant improvement in voluntary compliance," the proposals have languished in Congress.

Catching cheaters is another problem for the IRS because the agency does not ask citizens whether they employ household workers. But tax dodgers are sometimes snared when domestics retire and apply for Social Security benefits, only to find that they cannot collect because their employers never paid the taxes. The dismayed workers then often turn in their miscreant bosses. The penalty for cheating can be twice the amount of the overdue taxes plus interest.

Like the tax laws, the immigration statutes that regulate the hiring of household help are frequently flouted. In Los Angeles whole neighborhoods are $ filled with Mexican and Central American maids, nannies and gardeners. "There are probably close to 1 million undocumented people here," says Madeline Janis, executive director of the Central American Refugee Center. "Whatever the reason, it makes it almost impossible for people from friendly governments to acquire legal papers." Yet the nanny business is booming. "Immigrant women have the most experience with taking care of children," Janis says. "And working mothers have a need for nurturing, flexible and trustworthy child care."

Nevertheless, the immigration laws impose stiff penalties on families that hire undocumented workers. Under the 1986 statutes, employers and foreign workers must sign a declaration that the employees have proper working papers. The punishment for knowingly hiring illegal aliens can include fines and six months in prison.

Under certain circumstances, parents can sponsor aliens for working papers through an arduous process that requires filing forms with the Department of Labor and the Immigration and Naturalization Service. Employers then must pay Social Security and other taxes under a special IRS number during the 10 or more years that it can take for the government to approve the application.

Critics say the laws simply make it harder for families to find help at home. "Look at the roadblocks the law sets out for somebody who has a need for child care and cannot find qualified U.S. workers," says Ted Ruthizer, a Manhattan attorney who specializes in immigration law. "The law hasn't discouraged unauthorized employment -- it's just made people go underground."

Perplexed parents who want to obey all the laws can always turn to professional nanny agencies. "All my families sign a contract that says they will take full responsibility for paying taxes just as the law requires," says Marianna Bagge, director of the Denver-based National Academy of Nannies. "I have turned down families who are not willing to comply." Bagge trains up to 70 nannies a year, and their services aren't cheap. The graduates, who are all U.S. citizens, typically earn from $1,200 to $1,500 a month to start, and the academy collects a one-time $1,200 fee from the employer. Lesson: in the frantic search for child care, a parent's choices are seldom both cheap and legal.

With reporting by Kathryn Jackson Fallon and Jane Van Tassel/New York