UPDATE 1-Geithner told panel of tax mistake--Obama official

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WASHINGTON, Jan 13 (Reuters) - U.S. Treasury Secretary-nominee Timothy Geithner informed a Senate panel that he had made a common tax mistake while working for the International Monetary Fund in 2001-2003, an official with the Obama transition team said on Tuesday.

The official said the error stemmed from an unusual payroll system that U.S. employees of the IMF and other international organizations must use. "This unusual payroll system commonly creates confusion among U.S. employees," the official said.

Geithner realized the error in November during the review process for his nomination and immediately corrected it, the official added. "All of his taxes have now been paid in full, and at no time was there any intention on Mr. Geithner's part to avoid taxes," the official said.

Sen. Charles Grassley, the top Republican on the Senate Finance Committee, which has jurisdiction over Geithner's nomination, has raised questions about the tax issue and has also expressed concern about a lack of immigration papers for a housekeeper Geithner once employed, the Wall Street Journal reported on Tuesday.

The housekeeper was employed by the Geithners from 2004 to 2005. The official said the Geithners verified that she had proper documentation when she was hired and Geithner was unaware that three months before she stopped working for his family to have a baby that her documents expired.

"Nevertheless, she continued to reside legally in the United States, she was married to a U.S. citizen, and she was granted a green card a few months later," the official said.

The separate issue on taxes involved a requirement that U.S. employees of international institutions file their taxes as if they were self-employed, which involves paying Medicare and Social Security taxes that are normally taken out of an employee's paycheck by the employer. (Reporting by Caren Bohan; Editing by Dan Grebler)