The Social Security Domestic Employment Reform Act of 1994, was passed by Congress as media reports of high profile individuals noncompliance increased. This act was designed to make it easier for individuals who employ household help to report and pay taxes on those workers. When hiring a worker in the home, the following rules now apply:

Employers may not hire an illegal immigrant.

Beginning Jan. 1, 1994, Household employers must withhold Social Security taxes, and pay a matching share of Social Security taxes as well as unemployment insurance payments, pay worker's compensation and withhold state income tax for workers whose wages exceed $1,000. Household employers must report and pay withholding taxes and payroll taxes on their personal income tax return.

Household employers must provide the employee a Form W-2 at the end of the year documenting wages earned. A copy must be filed with the Social Security Administration and the State and Local taxing authorities.

Workers under the age of 18 are exempted unless household service is the individual's only employment. For example, if you hire a 16 year old as a baby-sitter on Saturday nights, you would not have to report and withhold taxes. However, if the 16 year old is hired to care for your elderly mother, or to do household cleaning you would have to withhold and report.

Household workers, regardless of age or type of work performed, must report all payments on their personal income tax return. Also, it is significant to note that household workers rarely, if ever, qualify as independent contractors.

Many people believe that it is an option to let the worker account for his or her own taxes, so that you do not have to do withholding. This could not be farther from the truth. And, the taxes could be the least important issue!