Don't Mess With Taxes

Few of us spend our money wisely all the time. Uncle Sam is no exception.

OK. So even those who rail against big government have to be happy about the possibilities for operational improvement that come with the creation of the new Performance Officer position.

And Nancy Killefer, whom President-elect Obama named to this job, brings with her a skills set honed at the IRS.

OK. I know what you're saying. Performance, efficiency and effective administration are not words that usually come to mind the minute you hear Internal Revenue Service.

But as someone who's been watching the IRS for more than a decade, believe me it has gotten better. And part of the reason is some the massive Internal Revenue Service Restructuring and Reform Act of 1998.

Killefer was involved with implementing that law.

Think about it dispassionately for just a minute. Last year, the agency got thrown a curve with the economic stimulus payment coming about early in the 2008 filing season. Yeah, it wasn't perfect in getting those out, but then none of us is mistake free.

But the IRS ended up delivering rebates to about 119 million Americans and process regular returns at the same time.

That's damn good multitasking in my book.

Killefer's credentials: The new performance officer's work with Treasury should serve her well on several levels. 

From the nuts and bolts job application side, she knows how one of the largest government departments operates. In addition to her work with the overall IRS restructuring, Killefer also was a founding member of the IRS Oversight Board.

From personal perspective, her experience with the IRS, the government agency that that has the most personal contact with the largest number of Americans (and non-American taxpaying residents), serves as a good training ground for what to and what not to do.

Both current and former IRS officials have high praise for Killefer.

Former IRS Commissioner Charles O. Rossotti, who worked closely with her during the agency's restructuring process, told Tax Analysts, "She was instrumental in making the whole restructuring process work. Almost everything that was done on restructuring I did in close consultation with her."

Robert M. Tobias, director of public sector executive education at American University, told Tax Analysts that Killefer is familiar with the problem of measurement in an agency. Such assessment of efficiency and effectiveness in outcomes is going to be one of her major responsibilities in her new White House role.

She also knows how the federal bureaucracy works. "She's going to understand better than anyone how difficult it really is to make fundamental changes in an agency," said Jeff Trinca, a chief of staff of the IRS restructuring commission who worked with Killefer.

Nanny tax no-no: Plus, Killefer knows how it feels to be on the other side of the tax table. 

Time magazine reports that despite her extensive knowledge of the system, the Killefer ran afoul of the IRS in 2005 when it placed a $946 tax lien on her home.

Yep, she was another nanny tax victim. She allegedly failed to pay unemployment compensation tax for her household employees, but was cleared shortly after.

Today's tax tip: What is it with government officials and their child care workers? Zoe Baird. Kimba Wood. Linda Chavez. Their professional aspirations all have been tripped up by nanny issues

In Baird's case, it was the nanny tax. She didn't pay it. She didn't get to be Bill Clinton's attorney general.

Despite its popular name, the tax responsibilities apply when you hire any household help, including a gardener, private nurse, maid or chauffeur. (I have a part-time chauffeur. His name is the hubby.) But these various types of domestic assistance could cost you more than just the workers' salaries.

You have to take into account two separate employment taxes. Whether you're responsible for either hinges on the amount you pay and how much control you have over the way the job is done.

First is FICA, the Federal Insurance Contributions Act amount that almost every wage earner sees taken out of his or her paycheck to pay for the future Social Security and Medicare distributions.

If you paid a household employee $1,600 or more in 2008, you must pay FICA taxes for that person. This 15.3 percent tax generally is split equally between the worker and boss, with each paying 6.2 percent of income toward Social Security plus 1.45 percent for Medicare. For 2009, you can pay up to $1,700 and avoid this tax task.

Then there's FUTA, the Federal Unemployment Tax Act payment that covers unemployment compensation to workers who lose their jobs. This tax is paid only by you, the employer. It's required if your total household salaries are $1,000 or more in any calendar quarter.

IRS Publication 926 has details on these potential household help taxes. Click here for a table to help you figure out if you need to withhold payroll taxes

If you've hired help around the house, give Pub. 926 a read. It's probably a good idea to also talk to your tax adviser so that you take care of all your associated tax responsibilities.

You never know when you might want a high-profile government job.