Stay right with your nanny. The IRS doesn't have an easy way to find folks who don't pay the required payroll tax for domestic workers, and filings of nanny tax forms have been dropping. But field agents routinely ask if you have such help. And clients of Independence, Mo. tax preparer Michael Martin discovered another risk, when they fired their off-the-books nanny and she applied for state unemployment benefits. It cost them $3,460 in back taxes, interest and penalties -- three times what they would have owed.
Who files nanny returns? The forms are quite popular among residents of Washington, D.C., where the filing rate is six times the national average. That tells you two things: (1) Every other person in the capital is hoping for an appointment to a position that requires Senate confirmation. (2) Elsewhere, a lot of cheating is going on.