Re: 2009 Planning: Home and Domestic Service Workers

Dear Client:

[USE FOR PERSONS WHO PAID DOMESTIC WORKERS -- CRITERION 1, 2, OR 3]

Your family may need outside assistance to provide care and supervision for your children or elderly parents while
you work. You may hire cleaning help or a landscaper to assist with the upkeep of your home, or someone to walk
your dog during the work week. These lifestyle choices simplify your daily routine, but there are rules you must
follow when compensating your domestic workers. We can help you determine what your responsibilities are with
respect to your workers, and ensure that you comply with the payment and reporting rules that apply to your
situation.

For instance, understanding the difference between an employee and an independent contractor is very important.
If you are an employer, you are required to withhold and contribute a matching amount of FICA and Medicare
taxes from your domestic worker's income. However, if your workers are independent contractors, you are only
required to report payments of $600 or more on a Form 1099-MISC (Miscellaneous Income). Failing to make the
right classification could cost you money.

Alternatively, if you incur qualified expenses on behalf of a child under age 13, or a disabled spouse or dependent,
you may be able to claim a child and dependent care tax credit. The credit that can be claimed ranges from 20 to
35 percent of qualified employment-related expenses, but is subject to a cap which is calculated as a percentage of
these expenses. The maximum amount of eligible expenses is $3,000 if you have one qualifying dependent and
$6,000 if you have two or more qualifying dependents.

[USE FOR PERSONS WHO RECEIVED DOMESTIC SERVICES PAY -- CRITERION 4]

You may be considered a domestic services worker if you perform household duties as part of your daily work
routine. Generally, services performed by cooks, waiters, babysitters, butlers, housekeepers, maids, valets,
caretakers, handymen, chauffeurs, and companions are considered domestic services.

However, you may be performing these services as an employee rather than an independent contractor, and this
distinction could be very important in determining how to report your income, and pay your employment and
income taxes. Generally, the right to control how duties are executed and what tasks are performed is sufficient to
make a worker an employee.

For example, if you are a babysitter in the parents' home, you are probably a domestic employee. If you earn
$1,700 or more in 2009, your employer is required to withhold from your income, and contribute a matching amount
of, FICA and Medicare taxes. Subject to certain limitations, your employer may also be required to pay federal
unemployment tax (FUTA), but is not obliged to withhold income taxes unless there is a mutual agreement to do
so. However, you are liable for federal and state income tax on your earnings, and may be required to make
quarterly estimated tax payments.

Conversely, if you watch children in your own home, you are most likely an independent contractor. Your clients
must report your remuneration of $600 or more on a Form 1099-MISC (Miscellaneous Income). Your income is
subject to self-employment and income tax, and along with any related business expenses, should be reported on
Form 1040, Schedule C. However, since your business expenses are not reported on Form 1040, Schedule A, they
are not limited to the 2% of adjusted gross income (AGI) threshold.

[CLOSING PARAGRAPH FOR BOTH]

In light of your circumstances, we feel that it would be beneficial for you to determine your status and review your
overall tax plan. Please contact our office at your earliest convenience to make an appointment.

Sincerely yours,