IRS Snags Taxpayers Should Know

In the wake of recent tax paying follies, personal finance guru Michelle Singletary reveals the little I.R.S. snags every taxpayer should know.

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MADELEINE BRAND, host:

From NPR News, it's Day to Day. Some high-profile political people have had some high-profile tax problems recently: Tom Daschle, Hilda Solis, Tom Geithner, Nancy Killefer. A couple of them actually had to bow out of the Obama administration. Well, even if you're not Tom Daschle, you need to be careful about how you do your taxes. Day to Day's personal-finance contributor Michelle Singletary is here now with some advice for the upcoming tax season. And Michelle, so what should we, ordinary taxpayers, keep an eye out for?

MICHELLE SINGLETARY: Well, you know, there are a lot of common mistakes regular taxpayers make that don't even come close...

(Soundbite of laughter)

SINGLETARY: To the tax issues that tanked a lot of the nominees that couldn't go forward. Some of the most common errors are incorrect or missing social security numbers. It sounds so simple, and yet, that something that catches a lot of people. The incorrect tax entered, based on your taxable income and filing status; math errors! Math errors is a huge issue for a lot of people. That's why it's important that if you can to e-file, because that will eliminate one of the major errors people make, which is in the math. And if you make less than $56,000 a year, you can get your taxes e-filed for free. You have to go to the IRS Web site to do it. But also this year for the first time, you can e-file even if you don't meet that. Now, you don't get the tax software that goes along with it that sort of walks you through, but if you already know how to do your taxes and you don't want to pay extra, you can e-file.

BRAND: OK, let's talk about an issue that seems to be the third rail for a lot of political appointees or nominees, and that is the nanny tax. What should we, ordinary people, know about this kind of tax...

(Soundbite of laughter)

BRAND: When we're hiring people to do stuff around the house?

(Soundbite of laughter)

SINGLETARY: Well, here's the thing: Most people are not going to have this problem.

(Soundbite of laughter)

SINGLETARY: But you do have to worry if you have household staff, and a household employee includes housekeepers, maids, gardeners and others who work around your private residence as your employee. If you pay a household employee cash wages of more than $1600 for 2008, then generally you must withhold social security and Medicare taxes from all their wages.

BRAND: All right. Let's say I have someone who comes in once a week to clean my house. I pay that person $100 a week, so that's $5200. Yet, this person works for a whole bunch of other people.

SINGLETARY: Right, then they would not be a household employee.

BRAND: OK, so, they have to exclusively work for you.

SINGLETARY: You have to be their boss, in a sense. So, you dictate when they come to work and what they do. That is a household employee. If you are contracting to have someone come in and they have other clients, then they probably are not a household employee, and you would not have to pay taxes for them.

BRAND: But if you have a nanny, for example, who comes in and works 40 hours a week and only for you, then you are responsible for those taxes?

SINGLETARY: Correct, and this is why a lot of people get in trouble. I mean, you can see why a lot of people aren't always quite sure if they have an household employee. But if the person comes and you say, you need to be here at this time of day; these are the hours that you're working for me, most likely they are your household employee. If you are contracting for them to come in, like through a maid service or an independent contractor to do your gardening work, then most likely they are not a household employee.

BRAND: Michelle Singletary is Day to Day's personal-finance expert. She writes "The Color of Money" column for the Washington Post. Michelle, thank you.

SINGLETARY: You're welcome.

(Soundbite of music)

BRAND: Stay with us. Day to Day returns in a moment.

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