Complete Guide To Babysitter Taxes: Who Pays & Why

Editorial team of TFX

• 18.01.22 • 5 min read

Your kids may have enjoyed more time with you because of working from home. The flexibility in your schedule in the past 12 months makes it possible for you to make extra money while avoiding spending money on child care. However, occasionally, you may need to hire a babysitter if you need assistance.

As a result of our babysitting business, our babysitters earn some side income, while our kids are in good hands, so it's a win-win situation. With tax season upon us, it is important to ask if our babysitters have to pay any babysitter taxes on their income.

Housekeepers, babysitters, gardeners, and other household workers who are not independent contractors may be subject to nanny tax.

You do not have to withhold federal income taxes from the pay of someone subject to the nanny tax. Withholding is only required if you agree to withhold taxes upon request. As a result, you'll need to request that the nanny complete a Form W-4. Furthermore, you might have other obligations regarding withholdings and payments. In this tax guide, we will examine how babysitters pay their taxes.

Do You Have a Household Employee?

When you hire someone to handle household work and that person is your employee, it means you have a household employee. If you are able to control not only what work is done, but also how it is done, you can consider the worker your employee. In your absence during agreed-upon work hours, your full time nanny is responsible for caring for your child.

There is no difference between full-time and part-time employees, or between labor hired through an agency or through a list provided by the agency or association or both, nor between full-time and part-time work. Also, it does not matter if the worker is paid hourly, daily, weekly, or by the job. He or she is your employee!

Is babysitting self-employment? A worker who is allowed to control how a task is completed isn't your employee, but a self-employed individual. As independent contractors, self-employed workers usually provide their own tools and provide services to the general public. 

Most childcare workers who provide services for you in their own homes are not your employees. Workers who work for an agency and are under their direction are not your employees.

Do Babysitters Have To Pay Taxes?

In all cases where babysitters make $400 or more (net income) for their work, they are required to report the income to the IRS when filing their tax returns. When you pay a babysitter, you do not have to issue a Tax Form 1099 for babysitting unless they earn more than $600 in self-employment income.

Teenagers (and their parents) often question whether they need to file taxes for money earned from side jobs, especially from babysitting gigs. In order to file taxes, babysitters must meet certain thresholds set by the IRS.

The IRS generally requires that dependents file tax returns if they earned more than $12,200 from their work, earned $400 or more from self-employment, or have an income from investments of more than $1,100.

When you earn $12,200 or more as a single person and $24,400 or more as a married couple, you are required to file. Filing taxes may not be something you're enthusiastic about, but it can offer you some benefits. Depending on what was withheld from your paychecks at your day job as well as extra tax benefits, you may be eligible for a tax refund.

How To Report Babysitting Income?

If you decide to pay the nanny tax, you can either increase your estimated tax payments or increase your wage withholdings.

Even if you are required to deduct or pay tax (unless you own a business), you do not have to file an employment tax return. Your employment tax payments are reported on Schedule H of your income tax return instead.

When you report and pay employment taxes, you must include the employer identification number (EIN). This is different from your Social Security number. A Form SS-4 must be filed if you need an employer identification number.

When managing tax preparation for a sole proprietorship, including taxes for your nanny, you need to use FICA and FUTA forms (940 and 941) and report these taxes using your sole proprietorship's EIN. Additionally, you must provide your nanny with a W-2 form by January 31, and a copy of this form must also be sent to the Social Security Administration by the same date.

How Does The Withholding of FICA and FUTA Work? 

In the 2021 calendar year, if your nanny earns $2,300 or more in cash wages (excluding food and lodging), you must withhold and pay Social Security and Medicare taxes (FICA). FICA is calculated on all wages (and not just on the excess) when you reach the threshold.

You do not have to withhold FICA taxes from nannies who are under 18 and do not have childcare as their principal occupation. The FICA tax will not apply to your nanny if she is a student or part-time babysitter.

Employees and employers are both responsible for paying FICA taxes. Withholding is the responsibility of the employer, and the employer must match the worker's share. Social Security and Medicare taxes form part of FICA. Employers and employees pay Social Security taxes at the same rate of 6.2% (totaling 12.4%). For both workers and employers, the Medicare tax equals 1.45% (totaling 2.9%).

Instead of deducting Social Security and Medicare taxes from your nanny’s salary, you can pay your nanny's share.

A federal unemployment tax is also due if you pay a worker's cash wages (without considering food and lodging) in any calendar quarter this year or last year that exceed $1,000. Federal unemployment tax is applicable to the first $7,000 of cash wages. FUTA tax rates are currently 6% at maximum, but credits often reduce this to 0.6%. Employers are responsible for paying FUTA taxes.

What If You Babysit For A Relative?

People often ask about situations when they don't have to pay self-employed babysitter taxes. It may be considered somewhat different if you babysit only for relatives. If you babysit for a relative, there is less of a profit motive, and you're more inclined to help than to make profits. Most places won't consider it self-employment, hence not subject to babysitting self-employment tax because of this. The reality is that you're doing it out of a sense of favor rather than for a profit.

As such, the income you earn from babysitting for family members would not be subject to self-employment tax. The income must nevertheless be reported on your tax return as taxable income.

Keeping Records

Record every household employee's tax information carefully. From the due date of your return or the date that you paid the tax, you should keep them for at least four years. The documents contain information about the employee, including their name, address, Social Security number; dates of employment, wages earned, withheld income and FICA taxes; FICA taxes paid by you for your worker; and copies of documents filed.