Government
DC bureaucracy overcomplicates following a law
While the advent of electronic forms has largely made bureaucracy easier to navigate, one DC agency runs private citizens through a gauntlet just to follow the law around household cleaning "employees." This needless red tape encourages many to bypass the regulations.
Photo by Kevin H. on Flickr.
If you have a household worker who comes to your house regularly and isn't part of a company, you may have to pay for Social Security and Medicare. And you may have to pay DC unemployment insurance, even if you pay them as little as $500 per quarter.
But it must be unusual for DC residents to legally employ individual domestic workers, because the DC Department of Employment Services (DOES) doesn't seem to really know how to handle household employees in a simple and straightforward way.
I recently started using a housecleaner who's not part of a service and therefore triggers the household employee rules. She only comes once every other week; many homeowners have their houses cleaned more often.
The federal part is not that complicated, though it could also be simpler. At the end of the year, I have to create a W-2, give it to my housecleaner. I also send a copy of the W-2, a W-3, and 6.2% 7.65% of what I paid her, and the similar amount (but, this year, smaller, thanks to tax cuts) I withheld from her paycheck, to the IRS.
In addition, I have to register with DC DOES for unemployment insurance. The cost is quite small, but the paperwork is plentiful and confusing.
First, to register, you have to fill out a form FR-500, which seems to aim to be the one single comprehensive registration point for every business, whether a homeowner with 1 housecleaner, or a multinational corporation that has tens of stores in the District.
It takes 4 clicks on the DOES site just to get to a page that explains what form you need to fill out, and which then says it's on "cfo.dc.gov" without providing a direct link. You then have to go through 9 long screens of mostly irrelevant information.
It's clear the form isn't designed with homeowners in mind from the first page, which has a drop-down for your title. It can be "Owner," "CEO," "President," "Partner," "Vice-President," "CFO," "Attorney," "Treasurer," "Accountant," "Secretary," or "Other."
Then the second page asks for type of business, with choices of "Sole Proprietor," "Limited PartnerShip" [sic], "Limited Liability Company," "Government," "General Partnership," "Joint Venture," "Limited Liability Partnership," "Corporation," or "Other."
If you're not daunted by having to choose "Other" twice, you get to proceed through a few more screens where you explain whether, among other things, you're going to store merchandise in a DC warehouse, will purchase cigarettes outside DC for sale, and much more.
But the ordeal isn't necessarily over once you complete the forms.
Next, Office of Tax and Revenue might send you 6 separate letters, in separate envelopes, because you, your spouse, and your accountant all need separate logins, all of which go to your address. They all also get passwords in separate letters.
Now, you wait for DOES to send you forms. They have to decide whether you are a quarterly or annual filer. According to the DC rules, household employers can just fill out a single form once a year, at tax time. Other companies have to file reports and pay money each quarter.
In my case, DOES entered things into the system as a quarterly filer, for some reason. In January, I found out from the aforementioned accountant that I have to do all this for our housecleaner for last year. But since DOES put me in as a quarterly filer, I am delinquent for not previously filing during multiple quarters last year, and they have between sending scary-looking notices (in even more envelopes).
There's also a form where I can check a box to ask to be an annual filer, but just for next year, and if I don't do that within 30 days, I will have to file quarterly all year. Fortunately, when I called DOES, the helpful employee fixed it right up and changed me to an annual filer in the system.
That didn't stop me from later getting a booklet of 12 monthly forms which I don't think I have to file. But to decide that, I have to figure out what bracket my DC withholding liability is, based on confusing instructions on page 3 of the booklet. Bear in mind that I'm not even paying that much, as this cleaner just comes for a few hours every other week.
And after all this, I get a new letter from the US Department of Labor in September saying, "All employers covered by Unemployment Insurance laws are assigned an industry code once they begin business operations. Your State agency and the Bureau of Labor Statistics (BLS) do not have sufficient business activity information to assign an industry code to your firm."
This is odd, since I had to pick a code for that old FR-500 back in January. Now they are asking me to fill out another form which, among other things, asks for the activities from my employees and the percentage of sales or revenue from each activity. Naturally, I make no money from the business of having my house cleaned.
And for all this, how much do I have to pay DC for unemployment insurance? About $90 for the whole year.
How can this be better? It's simple. Create a 1-page form for household employers that you can use if and only if you are employing people in your own home for domestic work, that doesn't make money. Leave out all the questions about whether you're also a cigarette importer.
Automatically register everyone who uses the form as an annual filer. Create a simple annual form for them to report their wages. And make sure your computer system codes everyone as a household employer so BLS doesn't need to ask them a battery of questions all over.
In the meantime, if you need to get your house cleaned, hire a service. If you don't do that, I can't advise you to break the rules and just not tell the tax authorities, but we all know that's what most people do. DC could help encourage more compliance by making it a lot easier to follow the law and not have to decipher tens of confusing and sometimes contradictory forms.
 | David Alpert is the Founder and Editor-in-Chief of Greater Greater Washington and Greater Greater Education. He worked as a Product Manager for Google for six years and has lived in the Boston, San Francisco, and New York metro areas in addition to Washington, DC. He loves the area which is, in many ways, greater than those others, and wants to see it become even greater.   |
Comments
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In all the brouhaha about income tax vs bond tax much was made about how it would hurt small business folks. Yet it's this kind of crap that really makes it hard to start out.
by Tim Krepp on Oct 17, 2011 3:04 pm • link • report
they are basically an organization that seeks primarily to shake down anyone trying to make any go at business here in DC.
And in addition to this- the city workers who staff these regulatory agencies are most likely NOT DC residents and have a more hostile attitude since Gray has taken over. it is back to the barry era when it took 10 phone calls to report a broken streetlight and just to make your neighborhood safe you have to endure these morons who do not want to help beacuse the sound of your voice might exude a post elementary school education and tells them/indicates that you are not from North Carolina.
We need a new mayor and we need to have a law that makes all city employees have to be residents.
by w on Oct 17, 2011 3:17 pm • link • report
by Jasper on Oct 17, 2011 3:26 pm • link • report
And the W-2 and W-3 forms actually go to the Social Security Administration, not the IRS; the IRS gets Schedule H with your 1040. And I'd like to call out the Social Security Administration for doing things exactly right online: You create an account with them, tied to your EIN. At the end of the year, you go online and enter the information for all of your employees. It generates the W2 and W3 forms for you, as PDFs, and then lets you electronically submit them as well. No mailing or extraneous paper; you just print the appropriate W2s to give to your employees.
by thm on Oct 17, 2011 3:39 pm • link • report
by Andy on Oct 17, 2011 3:41 pm • link • report
For decades...I have shaken my head at statements like " we need to have a law that makes all city employees have to be residents".
I've never gotten an answer as to actually what functional purpose it would serve. If there was an equally qualified DC resident to the one from PG or FFX who got the job, wouldn't they have been hired?
DC Gov hiring practices already give you a leg up if you are a District resident (much to my dismay).
What happened to the practices of hiring whomever was best qualified?
If there are two candidates for a job who are legitimately equally qualified and you decide to hire locally, fine, but I have always had a real problem with purposely hiring subpar folks because of a misquided idea that hiring DC residents is best. I, as a DC taxpayer want the best value for my money. The brightest hire that money can buy. Why is that idea so foreign?
Instead we have a system that hires poorly qualified (or completely unqualfied) people who are nearly impossible to fire and "phone it in" the entire time they are there. I am kinda sensititive to this having lived through the 80's and early 90's of DC where city services was a four letter word.
The utility of this prefernatial hiring is mirrored by our unemployment statistics. DC's unemployment rate of 11% masks the demographic breakdown between the unemployment rate of the cauc demo (~4%) and the black demo (~20%).
Basically, everyone who has a college degree in DC and who wants a job, has one.
That leaves us with a large population of at best, highschool graduates who've been unable to get jobs at McD's that you want to shoehorn into important city service jobs that require technical, managerial etc expertise. How does that make sense at all?
There is no doubt that DC has a unemployment problem, that stems from its education issues. But giving unqualified people jobs they can't do is not the solution to that problem.
by freely on Oct 17, 2011 3:49 pm • link • report
Looks like the threshold is $1700 per year.
That said, how many people actually go to all this trouble? Seems ridiculous for the government to deal with all this paperwork from different people. Shouldn't the person running the business have to file the taxes?
I could see that if she was a nanny who worked at your house 3 days a week every week this would make sense. In that case, she's your employee. But if she comes to your house for 2 hours a week and cleans, and cleans 10 other people's houses, she's providing a service to you. If I'm a solo consultant and provide services to 10 clients and they pay me, I have to file my own tax docs, right? How is this any different?
by MLD on Oct 17, 2011 3:56 pm • link • report
by thm on Oct 17, 2011 4:15 pm • link • report
by JJJJJ on Oct 17, 2011 4:21 pm • link • report
This is a feature, not a bug. Without all these impossible-to-follow regulations, we might actually have struggling middle-aged Latina ladies able to keep the money they make. Of course, that's just ridiculous! It's important that large corporations are able to skim off the cut they're entitled to.
Where's the fairness in letting Marta get that $70 a week from you when "Maid to Clean" can give her $30?
by oboe on Oct 17, 2011 4:28 pm • link • report
*Names changed, &tc...
by oboe on Oct 17, 2011 4:30 pm • link • report
Very few. If I had to guess David is trying to avoid a potential "nanny problem" should he ever decide to run for office.
by Phil on Oct 17, 2011 4:34 pm • link • report
by Jim T on Oct 17, 2011 4:56 pm • link • report
by Jim T on Oct 17, 2011 4:57 pm • link • report
Don't forget that when DC hires a subpar person, they also loose someone on unemployment or any of the other generous services the city offers to the poor. It might therefor be financially advantageous to hire Washingtonians in stead of PGers. Because when a FFXer gets hired by DC, FFX gets the savings from that, not DC.
Now, that does not help you get better services. But you wanted cheap. And that's what you got.
by Jasper on Oct 17, 2011 5:01 pm • link • report
by ChillPill on Oct 17, 2011 6:41 pm • link • report
I am so liberal that I am practically a socialist. I want to pay all of the proper taxes and make sure my household employee gets her Social Security and Medicare. But both the state and federal systems are ridiculously complicated and fraught with error. I can now see why people try to skirt the system, and also can get innocently caught up in not paying the proper rates.
by TJ on Oct 17, 2011 7:13 pm • link • report
You have it the wrong way around. It is purposely so hard to give people an easy way out. It's a design feature, not a bug.
by Jasper on Oct 17, 2011 7:57 pm • link • report
I haven't done the calculation but I would argue it costs DC far more to hire some illiterate seat warmer than it does to leave them on welfare.
Assuming someone gets 50K a year in salary for some random job at DCRA, with the overhead it costs us 70K a year to employ them. Even for DC's neediest, we don't spend 70K a year for housing/health/food benefits.
Then we have to consider that generally they are so useless in their job that we have to hire a second person to pick up the slack, so we end up hiring two useless employess to do the job of one average employee.
by freely on Oct 17, 2011 8:54 pm • link • report
by Rich on Oct 17, 2011 9:08 pm • link • report
by TJ on Oct 17, 2011 9:16 pm • link • report
As an experienced accountant in the District (or anywhere) The W-2 etc... do go to the IRS (Ogden usually) Your W-2 is just a form to show how much you paid a specific Tax Id Number (TIN / EIN / SSN) And the W-3 is just a summary of those (even if you only file one W-2, you have to have a summary...) You are writing different checks to different entities for State (District) unemployment insurance, Federal unemployment insurance, and then FICA. The Schedule H goes with the employer's Form 1040 and is a further summation of the W-2/W-3 you previously filed (they're due at the end of January every year)
If you noticed at the beginning of the year, you would have received a 2% raise because the Obama administration cut the 6.2% employee's (not the employer's) withholding to 4.2%... which is why David's numbers are correct.
A Form 1099 can also be used, and it's exponentially simpler, but still requires much of the filing requirements but doesn't require withholding.
by @SamuelMoore on Oct 18, 2011 6:59 am • link • report
actually, then they 'hire' a third person ... they get a contractor in at a fix price/defined contract period to actually do the job ... for far less money then the employees when you take into account that these employees will be on the books forever ... receiving retirement benefits which the next generations will pay for ...
by Lance on Oct 18, 2011 8:02 am • link • report
The great majority of DC employees live in Ward #9 right now- and they often have no idea of the layout of the city- and they do their jobs w/o thinking that their work impacts those of us who live here. I would rather have police and firefighters that know the city instead of having to convince them my residential alley actually exists even though it is not on their maps ,etc..Someone who knows the city is less likely to make stupid mistakes like this- and believe me- it happens all of the time. For a PG county resident to make a decision about a DC matter when they do not live here- based upon a lack of alliegence or knowledge of the city- this is downright unfair.
by w on Oct 18, 2011 8:21 am • link • report
That's a matter of training. Not of residency.
For a PG county resident to make a decision about a DC matter when they do not live here- based upon a lack of alliegence or knowledge of the city- this is downright unfair.
And you think there are no former Washingtonians that just moved to PGC? And there are no Washingtonians that just moved into the city? Doesn't about half of DC live here less than 5 years?
by Jasper on Oct 18, 2011 9:36 am • link • report
More likely that he's self-employed, or in some other unusual financial situation that has a high likelihood of triggering an audit.
by andrew on Oct 18, 2011 11:41 am • link • report
Many household employers evade these taxes, not because they care about the money involved, but simply because of the oppressive paperwork.
by Jack on Oct 18, 2011 11:46 am • link • report
Once you pay someone enough to have to register as a household employer ($1700 in a calendar year), you cannot treat your worker as an independent contractor and give them a 1099. That can get you in serious trouble with the IRS.
by TJ on Oct 18, 2011 3:49 pm • link • report
Once you pay someone enough to have to register as a household employer ($1700 in a calendar year), you cannot treat your worker as an independent contractor and give them a 1099. That can get you in serious trouble with the IRS.
by TJ on Oct 18, 2011 4:01 pm • link • report
by sb on Oct 18, 2011 5:21 pm • link • report
For 2011, the correct FICA tax totals are as follows:
Employer share: 7.65% -- 4.2% is Social Security, the rest Medicare.
Employee share: 5.65% (taking into account the 2-percentage point payroll tax cut)
by Paulus on Oct 19, 2011 1:16 pm • link • report
by Paulus on Oct 19, 2011 1:17 pm • link • report
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