If you are required to pay employment taxes on domestic help, you can pay them along with your regular income tax on Form 1040. However, you will need to complete Schedule H, Household Employment Taxes, and attach it to your tax return. You can call 1-800-TAX-FORM to get a copy of this form and its instructions, which will walk you through the procedures for completing the form. Also ask for a copy of IRS Publication 926, Household Employer's Tax Guide, which explains more about the responsibilities of employers, including the need to file annual W-2 forms for each employee.

Planning Tools You can download Schedule H to aid in your financial planning.

If you are required to pay payroll taxes on your employee's paycheck, the FICA tax rate that you'll pay is 7.65 percent of the employee's paycheck, and you should withhold an equal amount (7.65 percent of pay) from the amount you give your employee. FICA taxes include Social Security and Medicare. You may choose to pay your employee's portion of the tax, if you wish. You will also have to pay federal unemployment taxes, generally at a 0.8 percent rate (be sure to check with your state department of labor for the rules on state unemployment tax, since you will generally have to pay that tax as well).

You don't have to withhold income tax from your household employee's paycheck unless you want to. However, you may have to make advance payments of the employee's earned income credit, if the employee asks you to. See IRS Publication 926 for more details.

As mentioned above, you can report all the employment taxes you owe for domestic workers during 2007 on your 2007 tax return. However, you may have to pay an estimated tax penalty if your total tax bill, including taxes on household workers, is over $1,000 more than the tax you prepaid throughout the year through estimated tax payments or payroll withholding.

To avoid this penalty, it's generally necessary to estimate the household taxes you'll be liable for during the year, and use your estimate to increase the withholding amount on any paychecks you receive, or add the amount to your quarterly estimated tax payments during the year.

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