If this is your first time hiring a nanny, you may not be aware that the government expects you to withhold and send in the necessary taxes required for your employee. The IRS will not accept the excuse "I forgot" or "I didn't know." You don't have to look any further than the Zoe Baird story to see what unfortunate consequences can come of not following the law.

Zoe Baird was nominated to be the first female Attorney General of the United States by President Bill Clinton. Unfortunately the news media broke the story that she and her husband had hired two illegal immigrants as nanny and chauffeur and had not paid taxes on them. Baird was then forced to withdraw from the running because of the subsequent scandal.

Granted you may not be up for Attorney General as Baird was, but the consequences can still be dire if you do not file the taxes correctly and on time. If you paid your nanny or babysitter over $1,700 this year (which isn't much!) then you owe taxes. You will need to pay FICA, FUTA, and state taxes.

There are forms available online that can help you figure these up yourself, but many may find it overwhelming to keep track of everything. In that case, an accountant can always be helpful.

If you decide to do them yourself, there are a few things you'll need to know. First of all, you will need to have an employee ID number for your nanny. You can do this by filing an SS-4 form. You will also need to give your nanny a W-2 to fill out and then you must file a copy with the government along with a W-3. You can get free copies of these forms by calling 1-800-TAX-FORM.

Verify that your nanny has documentation that she is in the country legally. You will need an I-9 form for this. Make copies of verifying documents such as Social Security card, driver's license, passport, birth certificate, green card, or work permit and keep them on file.

Next you need to decide how you want to withhold the monies. Would it be easier to set aside small amounts throughout the year or simply the lump sum when tax time comes around. Many find it easier to withhold throughout the year, so that they are not stuck with a large payment later. To calculate how much you need to withhold, take the following into consideration:

FICA = 15.3% of total wages.

FUTA = .8% unless you file late when it jumps to 6.2% (you only need to pay this if the salary amount exceeded $7,000)

The temptation to pay your nanny "under the table" to avoid the hassles of paying taxes may be strong. However, be aware that if you are caught you can face prosecution. You will be liable for all unpaid back taxes. A two full-time income family with no childcare expenses can sometimes be a red flag to the IRS.

Remember if the process gets to be too overwhelming, there is plenty of help out there. Not only are there plenty of professionals who can help, but there are also computer programs and websites designed to help make the process easier.

How to Get IRS Forms:

You can order free copies of Form SS-4, Form W-2, Form W-3, and Schedule H by calling  (800) 829-3676         (800) TAX-FORM.

While you're at it, order IRS Publication 926 (Household Employer's Tax Guide) as well. It answers some questions not covered in this article.

Contact your local state agency (listed in the IRS publication 926) to find out the extent of what all is required of you.

You can use your computer to download Form SS-4, Schedule H, and Publication 926 by accessing the IRS Web site. (In case you were wondering, the IRS accepts only nonreproduced versions of Forms W-2 and W-3.)

You can download the IRS forms from your computer at:
http://www.irs.gov/formspubs/index.html?portlet=3

Contact your local state agency (listed in the IRS publication 926) to find out the extent of what all is required of you.