Your 2006 taxes: What if...

February 2, 2007

...You had a nanny or other household help? You sold stuff on the Internet? You want a faster refund? You're thinking about 2007?

...You had a nanny or other household help?

If you hired someone to do work in or around your house last year, you could be on the hook for employment taxes. The IRS doesn't care whether you hired these people through an agency or association; whether they worked full time or part time; or whether you paid them hourly, daily, weekly, or by the job. If you controlled what they did and how they did it, they were your "household employees." That includes babysitters, caretakers, cleaning people, drivers, health aides, nannies, private nurses, and even yard workers. You're only off the hook if you contracted with any of these people through independent businesses; then you won't owe any of their taxes.

If you've established that you do indeed owe taxes for household help, the threshold for 2006 and 2007 is $1,500 to any one employee. If you're at or over the limit, you'll have to pay FICA (Social Security and Medicare) taxes at 15.3 percent of total wages. You and your employee each owe 7.65 percent. You'll have to either withhold the employee's share or pay the entire tax yourself. Since you probably paid cash without withholding anything, you'll end up paying 15.3 percent.

Use Form 1040's Schedule H ( http://www.irs.gov/pub/irs-pdf/f1040sh.pdf) to determine exactly how much you'll owe; as far as IRS forms go, this two-pager (with instructions at http://www.irs.gov/pub/irs-pdf/i1040sh.pdf) is relatively simple to follow. The IRS' Household Employer's Tax Guide at http://www.irs.gov/pub/irs-pdf/p926.pdf provides additional help.

...You sold stuff on the Internet?

Don't sweat it if you occasionally sell a few things on eBay or another Internet auction site. Uncle Sam views the incidental online auction as the Internet equivalent of an occasional garage sale. Since you usually paid more for those items than you eventually sold them for, the sales aren't considered reportable income.

But if you had "recurring sales," and purchased items with the intent of selling them online for a profit, the IRS considers that a business and you're required to report the sales. But you'll also be able to take the associated business expense deductions. Just be sure to inform your tax professional about your online activities.