To our Clients:

As you may be aware, beginning January 1, 2010, the $100,000 adjusted gross income (AGI) limitation on Roth IRA conversions has been eliminated, making virtually all taxpayers eligible to convert to a Roth IRA. This presents an excellent opportunity for many taxpayers to shelter future income and appreciation from higher income taxes. Accordingly, we will briefly summarize the benefits of converting to a Roth IRA and the other issues you need to consider prior to converting.

Looking forward over the next few years, it is highly likely that Congress will increase income tax rates, especially the two highest income tax rates, in an attempt to offset record deficits and to pay off the national debt. By converting to a Roth IRA today, at lower income tax rates, you, in all likelihood, will convert future income and appreciation within the IRA to tax-free income at a relatively low tax cost.

This is illustrated in the following Example:

Jane currently has $500,000 in a traditional IRA and $175,000 in a non-qualified investment account (i.e., “outside account”). Because Jane has other sources of income (i.e., deferred compensation, pension, and Social Security income) to meet her annual living needs, Jane is looking to convert all of her traditional IRA to a Roth IRA so that her children will have an income-tax free inheritance.

At the present time, Jane is in the highest marginal tax bracket of 35%. Assuming a pre-tax rate of return of 6%, an after-tax rate of return of 4.5%, and a 40% future marginal income tax rate, the enclosed analysis illustrates the additional wealth that is created by converting to a Roth IRA.

Although the Example above seems fairly straightforward, there are many factors associated with a Roth IRA conversion that need to be considered before the decision to convert is made. In order to arrive at the desirable Roth IRA conversion amount, one must prepare several spreadsheet analyses to determine which factors will have the greatest impact. In particular, the following factors have generally had the most impact on successful Roth IRA conversions:

1. Asset mix (i.e., qualified investments vs. non-qualified investments)

2. Size of traditional IRA

3. Time horizon

4. Current and future cash flow needs

5. Current income tax rates vs. projected future income tax rates

6. Wherewithal to pay the income tax with nonqualified investment funds

In addition to the above, it is important to point out that the tax law allows taxpayers to “recharacterize” (i.e., to undo) their Roth IRA conversions if either: (1) the taxpayer does not qualify to convert to a Roth IRA or (2) the conversion is not tax advantageous. In either case, if a taxpayer converts to a Roth IRA at any time during the current tax year, he/she will have until October 15 of the following tax year to recharacterize the previous year’s Roth IRA conversion. This provision within the tax law creates a unique opportunity by taking the risk out of the conversion by giving the taxpayer the benefit of hindsight.

For example, if a taxpayer converts $500,000 to a Roth IRA on January 1, 2010, he/she has until October 15, 2011, to determine if he/she wants to keep all (or any portion) of the $500,000 Roth IRA conversion. If the IRA has grown from $500,000 to $600,000, the taxpayer most likely will keep the Roth IRA conversion in that $100,000 of growth has been shifted into a tax-free environment. Alternatively, if the IRA has declined in value from $500,000 to $350,000, the taxpayer most likely will recharacterize all of the $500,000 conversion in order to eliminate paying income tax on $150,000 of value which no longer exists.

If you are interested in learning more about Roth IRA conversions and/or believe this is a viable tax planning strategy for you, please call your Sheehan Service Partner to discuss this matter.

Anthony P. Mariani, CPA Named Senior Manager, Focusing on Privately-Owned Middle Market Companies

Sheehan & Company today announced that Anthony P. Mariani, C.P.A. has joined their company as a Senior Manager focused on auditing and client services. Mr. Mariani joins Sheehan & Company after spending 14 years with BDO Seidman, an international accounting and consulting firm specializing in audits of public and privately owned middle market companies. Mr. Mariani will be based in Brightwaters, New York.

“We are pleased to welcome Anthony to our team,” commented John DeFalco, Sheehan & Company partner. “His vast experience will strengthen our ability to serve our clients, and we look forward to his contributions to the firm.”

Mr. Mariani has over 20 years of accounting and auditing experience in a variety of industries including textile, construction, manufacturing, retail, consumer products and distribution. Mr. Mariani’s previous clients, among others, have included private equity owned portfolio companies; retail jewelry, apparel and supermarket chains; construction contractors and developers; equipment, consumer products and food distributors and an auto dealership. He received a B.B.A. from Dowling College, where he is listed among their top 40 alumni in 40 years.

For further information, please contact:

John C. DeFalco
Sheehan & Company, C.P.A., P.C.
631-665-7040
631-665-7014 (fax)
www.sheehancpa.com

About Sheehan & Company, C.P.A., P.C.
Founded in 1955, Sheehan & Company is one of Long Island’s largest and most respective Certified Public Accounting and Consulting firms. Through steady growth and commitment to client success, the firm has become well known in the New York Metropolitan area. The firm’s three New York locations, with their solid technology infrastructure, have provided domestic and international clients timely, professional services for nearly five decades.

Written by: Cynthia Finn Barry, CPA, Past President of the Executive Board of the Suffolk Chapter and current Statewide Director representing Suffolk. Cynthia is a Partner at Sheehan & Company CPA PC and has organized the Toys for Tots campaign since its inception fifteen years ago.

Brightwaters, New York - December 15, 2009 - The Toys for Tots program began in 1947 with Major Bill Hendricks, USCR and a group of Marine Reservists who collected and distributed 5,000 toys to needy children in the Los Angeles area. The story goes that Bill’s wife, Diane, crafted a doll and asked her husband to provide it to an organization that would distribute the doll to a needy child at Christmas. When it was found that no such agency existed, Diane told Bill that he should start one. Bill did so in 1947 and the first year was so successful that the Marine Corps adopted the program in 1948 and extended it nationwide.

The founding philosophy of “bringing the joy of Christmas to America’s needy children” has not changed. The generosity of all participants in our program this year has demonstrated that so many of us are touched by the spirit of the campaign and its mission to provide new unused toys to underprivileged children at Christmas.

On Friday, December 11, 2009, approximately twenty members of the United States Marine Corps Reserves from Amityville, New York descended upon the offices of Sheehan and Company CPA, PC in Brightwaters with a tractor trailer as they had in past years. Over the years, the Marines have changed their method of pick up as the collection has grown in epic proportions. Years ago they arrived with a five-ton truck then added rented vans, next added a 7 ton truck and now they come fully prepared with a tractor trailer.

The NYSSCPA Toys for Tots program has grown in epic proportions over the years. What began as a grassroots effort by the Suffolk Chapter Young CPA’s Committee in 1995 with ten member firms participating, has grown to encompass drop off sites in Nassau, Queens, Brooklyn and Manhattan in addition to Suffolk with over one hundred locations. As always, one of the key factors that contributed to the success of the 2009 Toys for Tots campaign was the support provided by member firms, local businesses, all branches of The First National Bank of Long Island and State Bank of Long Island, C.W. Post Accounting Society, Pathmark and client offices that participated in the drive.

Over the last year, the economic downturn has affected everyone in one way or another. At the start of the fifteenth annual campaign, many of us wondered how this year’s collection would be affected by the dwindling economy. Amazingly, the collection this year appeared to be slightly larger than in past years. The official count from the Marines was 122 boxes along with a few bicycles and scooters! We were told that we are indeed the single largest pick up on all of Long Island! What a wonderful accomplishment!

During the campaign, Lisa Martinelli-Bowman and I were invited by Michael Vittorio, President of The First National Bank of Long Island, to join him on KJOY to promote this year’s Toys for Tots campaign. We were featured on their program “Island Outlook”. We were thrilled to be able to promote this year’s event to all of Long Island through a new medium.

This year we were extremely fortunate to have so many volunteers to the program, it is impossible to name them all without missing someone. Volunteers were needed to obtain boxes from Pathmark, assemble and wrap the boxes, distribute and pick the boxes up from the many locations, coordinate the collection efforts at each location, shop for toys and arrange the collection for the Marines. Several volunteers enlisted the efforts of their children this year and educated them on how to help those that are less fortunate. Our shopping trip this year was made possible by the generous financial support of the firms represented by the Board of Directors and others.

Over the course of the past 62 years (1947 - 2009), the Marines have distributed nearly a half a billion toys to close to 250 million needy children and the NYSSCPA-Suffolk Chapter has been an important part of the Amityville collection for the past 15 years. For several years, Marine Toys for Tots Foundation was ranked in the Chronicle of Philanthropy’s “Philanthropy 400″.

The committee extends their sincere appreciation to the following firms, local businesses and their employees and customers for helping make a difference this holiday season for underprivileged children on Long Island:

By:  Heather L. Santonino

Sometime in May many New York State taxpayers received an important notice from New York State Department of Taxation and Finance.  This Notice (N-09-7) summarized recent tax law changes affecting certain estimated tax filers.

Effective for a 3-year period beginning January 1, 2009, the personal income tax rate was increased from 6.85% to 8.97% for all tax filers with a taxable income over $500,000.  The rate was increased to 7.85% for taxpayers filing jointly with a taxable income over $300,000, for heads of household with taxable income above $250,000, and for single filers above $200,000.  Effective on April 7, 2009, individuals with New York State or New York City adjusted gross incomes over $1 million may not claim any itemized deductions except for 50% of their charitable deductions.

These recent tax law changes impact 2009 personal income estimated tax payments.  The penalty for underpayment of estimated tax has been modified.  In order to avoid the penalty, the total amount of estimated tax and withholding tax must be the lesser of 90% of your 2009 tax or 110% of your 2008 tax.  However, under the new law, when determining whether 110% of your 2008 tax was paid, you must recompute your 2008 tax using the 2009 tax rates and itemized deduction rules.  New York State stated in their notice that there will be no penalty for any shortage in your April 15, 2009 payment, provided that the shortage is included in your June 15, 2009 payment.

We have prepared the attached example to illustrate the effects of the changes to the New York State tax law.  The example is shown for married taxpayers filing jointly with New York Adjusted Gross Income of $1,200,000.  In 2008 the taxpayers’ New York State Income Tax was $79,944.  Prior to the recent tax law changes the taxpayers would have avoided an underpayment penalty by remitting 110% of their 2008 tax liability ($79,944*110%=$87,938) in 2009 estimated tax payments.  However, under the new law, the taxpayers must remit 110% of their recomputed 2008 tax liability based on the new 2009 tax rates and itemized deduction rules.  In the enclosed example, you will see that the taxpayers’ recomputed liability is $106,295.  In order to avoid an underpayment penalty for 2009, the taxpayers must remit 110% of their recomputed 2008 tax liability ($106,295*110%=$116,925).  **Please note this analysis was prepared assuming that 90% of the taxpayers’ 2009 tax liability would be higher than 110% of the recomputed 2008 liability.

In reviewing the example you will find that the taxpayers’ tax increased $26,351 from 2008 to 2009 with unchanged income.  The $26,351 increase is approximately 33% of the 2008 tax liability of $79,944.  We have found that on average taxpayers with over $1 million in New York Adjusted Gross Income are experiencing a 33% overall tax increase from the 2008 tax year.

If you should have any questions or concerns, please contact your Sheehan & Company service partner.

ANALYSIS OF CHANGE IN 2009 NEW YORK STATE TAX
SAMPLE CLIENT

ASSUMPTIONS:
FILING STATUS:  MARRIED FILING JOINT
NEW YORK STATE RESIDENT

by Greg Hudgins

All U.S. persons (individuals and all forms of business entities, trusts and estates) who are citizens or residents of the U.S. or are living in or doing business in the U.S., are required to report any income realized in foreign accounts. Additionally, a U.S. person is required to file an annual Foreign Bank Account Report (FBAR) with the IRS if the U.S. person has a financial interest or signatory authority over a foreign account or accounts with an aggregate value exceeding $10,000 during the calendar year regardless of realized income.

The IRS has recently developed a voluntary disclosure program to facilitate compliance with regulations pertaining to the reporting of foreign financial accounts and taxation of income earned in foreign accounts. In a March 26, 2009 statement from IRS Commissioner Doug Shulman, he explained his goals are “to get those taxpayers hiding assets offshore back into the system” and “to have a predictable set of outcomes to encourage people to come forward and take advantage of our voluntary disclosure practice”. Under the program, a taxpayer disclosing previously unreported foreign income will need to file or amend all returns going back six years, pay back taxes and interest, pay either an accuracy or delinquency penalty on all applicable years and, in lieu of all other penalties that may apply, pay a penalty equal to 20% of the amount in the foreign accounts in the year with the highest aggregate value. While severe, the penalties imposed under the voluntary disclosure program pale in comparison to other civil or criminal penalties that a taxpayer may be subjected to for non-reporting and non-compliance. The civil penalty for failing to file an FBAR can be as high as the greater of $100,000 or 50% of the total balance in the foreign account and criminal penalties for tax evasion and filing false returns can be fines of up to $250,000 and prison terms of up to five years.

The voluntary disclosure program is not available to taxpayers who are currently under examination by the IRS. Additionally, the program is not designed for taxpayers who have reported and paid tax on all their taxable income from foreign accounts but have failed to file annual FBARs. Those taxpayers should file the delinquent reports as soon as possible with the IRS Philadelphia Offshore Identification Unit. No penalites will be imposed on the late filing of the FBAR forms, as long as it is done by the September 23^rd deadline under the terms of the program.

If you believe you have a foreign bank account reporting requirement, or have previously unreported income from foreign accounts, please consult your Sheehan & Company service partner for guidance. The IRS voluntary disclosure program terminates September 23, 2009.

By: Amy Scholl

New York State recently signed into law the Metropolitan Commuter Transportation Mobility Tax (MCTMT). The MCTMT will be administrated by the New York State Tax Department, and the proceeds from this tax will be distributed to the Metropolitan Transportation Authority.

The MCTMT is imposed on certain employers and self-employed individuals engaging in business within the Metropolitan Commuter Transportation District (MCTD). The MCTD includes New York City (the counties of New York (Manhattan), Bronx, Kings (Brooklyn), Queens, and Richmond (Staten Island)), and the counties of Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess, and Westchester.

This new law applies to:

· Employers (other than public school districts) beginning on or after March 1, 2009

· Domestic employers beginning on or after March 1, 2009

· Employers that are public school districts within the metropolitan commuter transportation district beginning on or after September 1, 2009

· Individuals with net earnings from self-employment for tax years beginning on or after January 1, 2009

· Partners whose share of partnership net earnings is from self-employment for tax years beginning on or after January 1, 2009.

The following describes the impact of the new tax on the above groups in detail.

Employers:

Effective March 1, 2009, employers that have payroll expense in excess of $2,500 in any calendar quarter within the MCTD are subject to the MCTMT. Payroll expense means total wages and compensation as defined in section 3121 of the Internal Revenue Code, as paid to covered employees. However, unlike the annual limitation on the amount of wages and compensation paid to an employee subject to social security tax, no wage and compensation limitation applies when computing payroll expense for the MCTMT.

There are some employers who are not subject to the MCTMT. These are agencies or instrumentalities of the United States, the United Nations, or interstate agencies or public corporations created under an agreement or compact with another state or Canada.

Covered employees are those employees whose services are allocated to the MCTD. The Law provides the following tests to determine if an employee’s services are allocated to the MCTD:

1) Localization: Services are deemed localized within the MCTD if they are either performed entirely within the MCTD or are performed both in and out of the MCTD, but those performed outside the MCTD are incidental to the employee’s services performed within the MCTD (for example, the services are temporary or transitory in nature, or consist of isolated transactions.)

2) Base of operations: If an employee’s services are not localized in the MCTD, all services are allocated to the MCTD if the employee’s base of operations is in the MCTD (this test cannot be applied if the employee had either more than one base or no base of operations).

3) Place of direction and control: If neither of the two preceding tests results in a clear allocation of services, and (1) direction and control (the place from which the employer directs and controls the activities of the employees) emanates from only the MCTD, and (2) the employee performs some services within the MCTD, then all services are allocated to the MCTD.

4) Residence: If none of the preceding tests results in a clear allocation of services, all of the employee’s services are allocated to the MCTD if the employee resides in the MCTD and performs some services in the MCTD.

The tax is imposed at a rate of .34% (.0034) of an employer’s payroll expense for all covered employees, for each calendar quarter. An employer cannot allocate payroll expenses for covered employees who work both in and out of the MCTD for purposes of computing the MCTMT. That is, if an employee is considered a covered employee, all the payroll expense for that employee is subject to the tax. This tax is an employer tax. Accordingly, an employer is prohibited from deducting from the wages or compensation of an employee any amount that represents all or any portion of the MCTMT.

The MCTMT must be reported and paid for each calendar quarter by the last day of the month following the end of the quarter as follows (except for PrompTax filers):

Quarter Due date

January 1 to March 31 April 30

April 1 to June 30 July 31

July 1 to September 30 October 31

October 1 to December 31 January 31

When the due date falls on a Saturday, Sunday or legal holiday, the employer may report and pay on the next business day. There are no extensions of time allowed for employers to report or pay the MCTMT.

There is a special rule for filing for 2009. Since this law applies beginning on or after March 1, 2009 for employers, the initial MCTMT report and payment is due by November 2, 2009 (due to October 31, 2009 falling on a Saturday), and must include the MCTMT due for the period March 1, 2009 though September 30, 2009. There will be no penalty on amounts attributable to the tax for this period, provided the employer has made the initial payment by November 2, 2009.

PrompTax filers: Employers who are required to enroll in the PrompTax program for New York State withholding tax purposes are required to make payments of the MCTMT on the same dates the withholding tax payments are remitted under the PrompTax program. Employers who are not required to enroll in the PrompTax program for withholding tax purposes, but do so voluntarily, are not required to make MCTMT payments on the same date as they make their PrompTax payments. However, they may choose to do so.

Domestic employers:

The same rules for employers (above) apply to domestic employers.

Employers that are public school districts:

The same rules for employers (above) apply to employers that are public school districts, with the exception of the filing deadline for the initial MCTMT report and payment. Since the law applies to public school districts within the MCTMT beginning on or after September 1, 2009, the initial MCTMT report and payment must be for the period September 1, 2009 through September 30, 2009, and is due by November 2, 2009 (due to October 31, 2009 falling on a Saturday).

Currently, the New York State Department of Taxation and Finance has not determined how the reporting of the MCTMT for employers, domestic employers, and employers that are public school districts will be required to be filed. The options being discussed by New York State are either (1) an attachment to the Quarterly Combined Withholding, Wage Reporting, And Unemployment Insurance Return, Form NYS-45, or (2) a new reporting return to be designed.

Individuals with net earnings from self-employment:

Effective for tax years beginning on or after January 1, 2009, individuals (including partners in partnerships and members of limited liability companies (LLC’s) that are treated as partnerships) who have net earnings from self-employment allocated to the MCTD are subject to the MCTMT. However, if the individual’s net earnings from self-employment allocated to the MCTD are $10,000 or less for the tax year, no tax is due. The $10,000 threshold must be applied on an individual basis regardless of the taxpayer’s filing status.

Net earnings from self-employment means an individual’s net earnings from self-employment as defined under section 1402(a) of the Internal Revenue Code. However, unlike the annual limitation of net earnings from self-employment subject to social security tax, no limitation of net earnings from self-employment applies when computing the MCTMT.

Net earnings from self-employment allocated to the MCTD means an individual’s net earnings from self-employment that are attributable to a business carried on within the MCTD. Business activity is carried on within the MCTD if an individual has, maintains, operates, or occupies desk space, an office, a shop, a store, a warehouse, a factory, an agency, or other place located in the MCTD where his or her business matters are systematically and regularly carried on. Similarly, business activity is carried on outside of the MCTD if the individual has, maintains, operates, or occupies desk space, an office, a shop, a store, a warehouse, a factory, an agency, or other place located outside the MDTD where his or her business matters are systematically and regularly carried on.

If all of the individual’s business activity is carried on within the MCTD, all of the individual’s net earnings from self-employment are allocated to the MCTD. If the individual carries on business activities both in and out of the MCTD, only a portion of the individual’s net earnings from self-employment are allocated to the MCTD. The individual must allocate these net earnings for purposes of determining whether or not the $10,000 annual threshold has been met. For this purpose, net earnings are allocated using the same rules that apply for purposes of the allocation of business income earned in and out of New York State under the personal income tax rules.

The tax is imposed at a rate of .34% (.0034) of the total net earnings from self-employment allocated to the MCTD for the tax year.

Individuals who will owe any MCTMT for the tax year must make estimated tax payments, as there are no exceptions. These estimated tax payments are separate from your individual estimated income tax payments. The estimated MCTMT payments are due on April 30, July 31, and October 31 of the current year, and January 31 of the following calendar year. When the due date falls on a Saturday, Sunday or legal holiday, the individual may pay on the next business day. In order to avoid a penalty for underpayment of the MCTMT for the tax year, the individual’s total amount of MCTMT payment(s) must be:

· At least 90% of the amount of the MCTMT due for the current tax year; or

· 100% of the MCTMT reported for the prior tax year if the individuals net earnings from self-employment allocated to the MCTD for the prior tax year is less than $150,000; or

· 110% of the MCTMT reported for the prior tax year if the individuals net earnings from self-employment allocated to the MCTD for the prior tax year is more than $150,000.

Since 2009 is the first year of this tax, only the 90% rule listed above applies in 2009. Also for tax year 2009 New York State has limited the individual’s MCTMT liability to be only ten-twelfths of the total net earnings from self-employment allocated to the MCTD for the entire year.

If an individual is subject to the MCTMT for 2009, the initial estimated tax payment is due by November 2, 2009 (due to October 31, 2009 falling on a Saturday). To estimate the initial MCTMT payment, use the following formula:

Step 1: Estimate the individual’s 2009 net earnings from self-employment allocated to the MCTD

Step 2: Divide the amount from Step 1 by 12

Step 3: Multiply the result from Step 2 by 10

Step 4: Multiply the result from Step 3 by .34% (.0034)

Step 5: Multiply the result from Step 4 by 75% (.75). The result of this step is the amount of the

initial estimated tax payment due November 2, 2009.

There will be no penalty for the underpayment of estimated tax for periods prior to October 31, 2009, provided the individual includes the total estimated tax due for the period January 1, 2009 through September 30, 2009, in the November 2, 2009 payment.

An individual with net earnings from self-employment must file a reconciliation return to reconcile his or her MCTMT estimated tax payments. The MCTMT reconciliation return is due on or before the 30^th day of the fourth month following the close of the tax year (April 30 for calendar-year tax payers). If an individual can not meet the deadline for the filing of the annual reconciliation, they can request an automatic extension of time to file the return. However, an extension of time to file the MCTMT reconciliation return does not extend the time to pay, as the full payment of any balance due must be made with the request for extension. As of today, the New York State Department of Taxation and Finance has not determined the length of the extension of time to file.

Partnerships and partners:

The same rules for individuals with net earnings from self-employment (above) apply to partnerships and partners.

If a partnership (including an LLC treated as a partnership) is doing business within the MCTD, each partner will be subject to the MCTMT, and estimated tax payments, based on his or her share of the partnership’s net earnings from self-employment allocated to the MCTD, if his or her net earnings from self-employment allocated to the MCTD is more than $10,000 for the tax year. The partnership must provide either the actual amount of net earnings from self-employment allocated to the MCTD or the allocation percentage to each partner so that the partner can determine the amount of the MCTMT due. To determine the amount of net earnings from self-employment allocated to the MCTD or allocation percentage, see the steps described above.

As an alternative to each partner making estimated MCTMT tax payments and filing separate reconciliation returns, a partnership that meets certain conditions may file one group reconciliation on behalf of its partners who elect to participate in the group return. A partnership that chooses to file a group reconciliation return must also make group estimated tax payments on behalf of the electing partners. The New York State Department of Taxation and Finance has advised that further information regarding this type of filing will be available as it is developed.

Partnerships that do business within the MCTD are required to make estimated MCTMT payments on behalf of individual partners who are nonresidents of New York State except in the following circumstances:

· Estimated tax payments are not required for any partner whose estimated MTCMT required to be paid for the tax year by the partnership is $300 or less.

· Estimated tax payments are not required for any partner if the partnership files a group return and the partner has elected to be included in the group return.

Additionally, estimated MCTMT payments are not required for any partner that certifies to the partnership that the partner will comply in his or her individual capacity with the department’s MCTMT estimated tax filing requirements.

Estimated MCTMT payments cannot be combined with any estimated New York State personal income tax payments the partnership may be required to make on behalf of nonresident partners.

In the State of New York, if you hire a domestic employee, you may be subject to the laws requiring the withholding of Federal, Social security, Medicare, New York State, and New York City taxes. You may also be responsible for paying the appropriate federal and state agencies for unemployment insurance, workers’ compensation and disability insurance.
As a domestic employer, you are responsible for verifying the employee is eligible to work in the United States. All employers must complete and retain a form I-9, Employment Eligibility Verification, for each individual they hire. On the form, the employer must examine the employment eligibility and identify document(s) an employee presents to determine whether the document(s) reasonably appear to be genuine and relate to the individual and record the document information on the form I-9. The list of acceptable documents can be found on the last page of the form.

Federal requirements:
If you pay wages of $1,700 or more in 2009 to any one domestic employee, you are required to withhold and pay Social security and Medicare taxes. The domestic employer’s portion of Social security and Medicare taxes is 6.2% and 1.45% of wages, respectively, for a total of 7.65%. In addition, the employee’s share of Social security and Medicare taxes is 6.2% and 1.45%, respectively. At the domestic employers discretion you can choose to pay the employee’s half of these taxes, for a total of 15.3%. The domestic employer is responsible for remitting payment of the employers, as well as, the employee’s share of these taxes regardless of whether the employer pays the employee’s half. The remittance is made on an annual basis with Schedule H of the employers Individual Income Tax Return, Form 1040. Please be aware that if a domestic employer remits his or her individual income taxes via quarterly estimated income tax payments, these additional taxes should be considered when calculating the quarterly estimates to be made.
If you pay wages of $1,000 or more in any calendar quarter of 2009 to a domestic employee you are required to pay Federal unemployment tax. Federal unemployment contributions are based on the first $7,000 of wages paid to a domestic employee in a calendar year. This tax is usually 0.8%. Accordingly, the tax is usually $56 per employee per year. This tax is also remitted annually with the employers Schedule H.
Domestic employers are not required to withhold Federal, New York State of New York City income taxes, but may do so voluntarily by an agreement between the employer and employee(s). A domestic employer who agrees to withhold Federal income tax will be required to remit the withholding on an annual basis with the employers Schedule H. Your employee should complete form W-4, Employee’s Withholding Allowance Certificate, which will advise you of the correct federal income tax to withhold from their pay.
Once you have decided to hire domestic employees, you are required to obtain a federal employer identification number (EIN). This can be obtained by filing Form SS-4, Application for Employer Identification Number, with the Internal Revenue Service, or by completing the form online at https://sa1.www4.irs.gov/modiein/individual/index.jsp.

New York State requirements:
As a domestic employer, you are liable under the New York State Unemployment Insurance Law on the first day of the calendar quarter in which you pay wages of $300 or more. Accordingly, you must file form NYS-45-MN, Quarterly Combined Withholding, Wage Reporting, and Unemployment Insurance Return, on a quarterly basis, reporting total wages paid during the quarter. Note that a quarterly return must be filed even if no wages were paid in a quarter, or no tax is due. Unemployment contributions are based on the first $8,500 of wages paid to an employee in a calendar year in New York State. For the first year as a domestic employer, the unemployment insurance rate is usually 4.1%.
Once you have decided to hire domestic employees, you are required to obtain a New York State Unemployment Insurance Registration Number. This can be obtained by filing Form NYS-100, New York State Employer Registration for Unemployment Insurance, Withholding and Wage Reporting.
As stated above, domestic employers are not required to withhold New York State or New York City income taxes, but may do so voluntarily by an agreement between the employer and employee(s). Kindly note that form NYS-45-MN is also used to remit any New York State and New York City income tax withholdings on a quarterly basis. Your employee should complete form IT-2104, Employee’s Withholding Allowance Certificate, which will advise you of the correct New York State and/or New York City income tax to withhold from their pay.
For 2009, a domestic employer may exclude up to $120 per month from an employee’s taxable wages for qualified transportation fringe benefits. Therefore, if you pay for your domestic employee’s commuting expenses, up to $120 per month should be deducted from their taxable wages.

Workers’ compensation requirements:
In New York State, domestic employees employed forty or more hours per week by the same employer are covered by the Workers’ Compensation Law. This means if your domestic employee works 40 or more hours per week for you, you are required to obtain, and keep in effect, workers’ compensation coverage. You should contact your insurance carrier to obtain this coverage.

Disability insurance requirements:
In New York State, domestic employees employed forty or more hours per week by the same employer are also covered by the Disability Benefits Law. This means if your domestic employee works 40 or more hours per week for you, you are required to obtain, and keep in effect, a disability policy. This can also be obtained by your insurance carrier, or we can assist you with obtaining this coverage.

Requirements for states other than New York:
If you are a resident of another state, different rules apply. Please contact us for additional information.