Md. Congressional Candidates Didn't Pay Taxes for Campaign Staffs
Capital News Service
Tuesday, Nov. 23, 2010
WASHINGTON - Republican Congressman-elect Andy Harris and Democratic Rep. Donna Edwards, unlike other Maryland congressional candidates, did not provide health insurance, cover payroll taxes or pay for unemployment insurance for their campaign workers, a practice that may skirt IRS rules.
The politicians avoided these costs by paying their campaign staffs as independent contractors instead of regular employees, according to expense reports filed with the Federal Election Commission.
Health care benefits have been a recurring theme for Harris, whose anti-"Obamacare" stance was a key plank in his hard-fought campaign in Congressional District 1. And, after not providing health care for his campaign workers, Harris grabbed national headlines last week when he complained at a House freshman orientation session that his government-subsidized health care would take almost a month to kick in. The complaints were originally reported in Politico.
While employers are not legally mandated to provide health care for workers they classify as employees, they are required to pay part of the Social Security and Medicare taxes assessed of employees -- which can add up quickly, said accountant Garrett Isacco, who has worked with small businesses in the D.C. area for more than 30 years. Independent contractors pay these taxes themselves.
"Some employers would very much not like to do that, because it can get quite expensive," Isacco said, adding that the taxes do get paid either way. "At the end of the day it probably evens out; it's just a question of whose pocket it's coming out of. ... For the worker it's definitely better to be an employee."
Some workers for the Harris campaign do not appear to qualify as independent contractors.
An Edwards spokesman said her campaign only had three staffers who worked part time and as such considered themselves contractors. Edwards had scant opposition in Republican Robert Broadus, who she beat with 83 percent of the vote.
Harris representatives declined comment last week. Harris himself declined comment Friday, saying he was busy with orientation for incoming House members.
The Internal Revenue Service's line between worker and contractor is sometimes blurry. The legal test, according to a training manual for classification auditors, is "whether there is a right to direct and control the means and details of the work."
Former IRS trial attorney Bruce Gardner reiterated that, saying, "the crux of that test" is the authority that supervisors have.
"If (the employers) dictate what time they have to be there, what they have to do ... if they designate the place, if they review the person's work," Gardner said, "if you're trying to establish that the person was an employee, then that's something you would look for."
These are also the points on which Harris's workers may fail. While it's possible that some campaign workers were functioning as contractors, it's odd that the Cockeysville Republican doesn't have a single employee on the books, said Sean Parnell, president of the Center for Competitive Politics, a conservative group that opposes most forms of campaign finance regulation.
"Campaigns do regularly have people who are independent contractors. It's usually on the high end, like a consultant," Parnell said. "Often times it doesn't make sense to have a full-time accountant or full-time attorney, but for everybody to be an independent contractor, I don't know I've ever seen that."
There are 14 individual workers paid for consulting in Harris' records earning a total of $212,606, though few of the payments appear to be for one-time services; almost all are regularly-spaced payments for identical amounts.
Harris campaign manager William Lattanzi, for example, was not classified as an employee, despite receiving bi-weekly paychecks for $2,750 beginning in February. As of the last FEC filing Oct. 13, Lattanzi received a total of $48,750 for "strategic consulting."
Gardner said it was possible there was a contract that called for the payments, but Lattanzi wouldn't qualify as a contractor either way if he was supervised by Harris.
Patrick Daly, who received payments for "campaign consultant services," was a legislative assistant in the Maryland General Assembly and now lists himself on Facebook as an employee of the United States Congress as "Assistant to Congressman Andrew P. Harris, M.D."
During the campaign, however, Daly was paid as a contractor and received regular payments totaling $16,398 from Harris's camp for consulting since January 2009, and another $11,100 for "data entry services."
Early in his congressional career, Rep. Roscoe Bartlett, R-Frederick, also did not pay workers' unemployment and other payroll expenses, a move blasted in May 1993 by the Baltimore Sun editorial board, which said he "displayed a serious lack of judgment."
"(Bartlett) may believe all tax money is squandered, but taxes also pay for benefits his employees are entitled to have," the board wrote. "Mr. Bartlett apparently has to be coerced into following the laws most of us follow voluntarily."
Bartlett's records do not list any payments for these items in the 2010 election either, but there are also almost no payments to individuals and none for consulting.
All other incumbent Maryland U.S. representatives list payments for payroll taxes.
Side-stepping employer tax costs could save candidates a significant amount of money, especially on larger campaigns with staffs as extensive as Harris'. For example, Harris' opponent, outgoing Rep. Frank Kratovil, D-Stevensville, lists five campaign employees making a total of $62,120 for this election. Kratovil spent almost $27,825 on payroll taxes, health benefits and unemployment insurance.
Harris and Kratovil combined spent almost $3.9 million dollars on the race in Congressional District 1. Kratovil declined to comment for this article.
Lisa Lester, a spokeswoman from the Maryland Comptroller's Office, said the classification question "wasn't our issue" because the taxes are all ultimately paid by someone, but that the candidates "should have been paying unemployment for those people."
But Stanley Block, a Baltimore tax attorney since 1961, said it's "not just a black and white thing" -- there are straightforward regulations in place, but small differences could change a lot.
"He may hire 10 different people, three may be employees, seven may be independents," Block said. "It's really hard to say."
Isacco said he encouraged his clients to be especially careful if there was any question about how to classify workers.
"It can be really harsh," Isacco said. "If the IRS comes in and audits you and says you misconstrued your employees, they will levy all kinds of back taxes and penalties and interest."
But there are myriad ways that these lines are blurred. For example, Edwards, D-Fort Washington, last paid payroll taxes for her campaign workers in June 2009, according to FEC records. In 2010, she spent about $28,700 in "consulting fees" for campaign manager Adrienne Christian and communications director Dan Weber; both also work in her congressional office.
Weber said Edwards's three campaign workers were accurately classified as contractors and attributed 2009's payroll costs to an employee who has since "switched" to contractor status.
"We don't spend the majority of our time working for the campaign," Weber said. "We are independent contractors."