With summer right around the corner and schools getting ready to let out, many working moms are scrambling to find childcare. However, one aspect of babysitters you may not realize is that, legally, you do have to pay taxes on them. Why? Short answer: they are considered household employees per the IRS definition in IRS Publication 926.
So what does that mean? Legally, you are required to pay state and federal unemployment taxes, FICA, and Workers’ Comp. It’s a huuge hassle to get it figured out (trust me – been there, done that), but once you have it set up, it’s seamless and (plus side) you’re completely legal (helloooo, tax audits).
“Well, my babysitter is going to act as an independent contractor.” Ha. Nice try. The IRS is all over that. They explicitly exclude childcare workers in your own home as independent contractors, as you “control not only the work they do but also how they do it.”
Okay, so now that I’ve (hopefully) convinced you to pay the taxes, how do you go about doing that?
Let me break it down for you.
- First, register for an Employer ID Number (EIN). This can be done online at here. You’ll need that to set up other accounts and to pay taxes.
- Make sure to give your babysitter a W-9 form to fill out. This just documents their name, address, and social security number.
- After you have those both configured, set up an account with Ohio’s Workers Comp as a household employer. How much you have to pay into this is dependent on how much you pay in wages. This is paid yearly, so you only have to remember to do it once. You can set up your account and make payments online at here.
- If you will pay them more than $2,100 in the current tax year (2018), plan to pay FICA taxes (social security and medicaid). If you pay them less, don’t worry about it. You will still have to pay the other taxes, but at least get a break on FICA. The trick with FICA is both you and your nanny are responsible for paying, just like with you and your employer. The nanny’s portion is 7.65% of his/her income (1.45% to Medicare and 6.2% to Social Security), but you are also responsible for an additional 7.65%. Most people choose to withhold the nanny’s portion from his/her paychecks and then pay both portions. These can be remitted at any time and with any frequency, but I recommend paying quarterly instead of just one lump sum. It helps take away a little bit of sticker shock, as this is the biggest amount you’ll pay in taxes. These can be paid online as well, here.
- If you pay the babysitter more than $1000 in wages, you will also have to pay federal unemployment taxes (FUTA). This is only 0.6% paid on the first $7,000 of wages and can be paid when you file your federal income tax return.
- You also need to pay state unemployment taxes (SUTA). This has to be paid quarterly. The rate for this is variable, but is around 3%. This is also paid online via Ohio’s ERIC portal here.
- You do not have to withhold your nanny’s state or federal taxes, and most people don’t. That adds unnecessary complications to calculating wages, and that’s something he/she is responsible for filing herself when tax time rolls around.
- You will have to provide your babysitter with a W-2 before the January 31 deadline, and also submit a Form 1040 Schedule H on your federal taxes.
If that all seems like too much of a hassle, there are service and software to help. NannyPay is a popular software, and Care.com will also help with tax withholding. However, both of them charge for the service, and I just wasn’t really willing to pay for something I could handle on my own (call me cheap).
I used this as my guide and also worked with an accountant to make sure we were doing everything correctly. I do recommend you double-check your own setup with an accountant, because I am definitely not one. I’m just a mama who always follows the rules (I reeeeally don’t like getting in trouble) who was too cheap to pay a service fee, but feel free to hit me up with any questions!
FAQs
W-2 For Babysitters Who Are Your Employees
Do you have to put babysitting money on taxes? ›
According to the IRS, babysitters do need to report their income when filing their taxes if they earned $400 or more (net income) for their work. This income is basically from self-employment, so you don't have to issue a 1099 if you pay a babysitter unless they earned $600 or more.
Do I have to give my babysitter a 1099? ›
If they operate as an independent contractor, you will need to use a Form 1099-MISC, which is for taxpayers who received payments of $600 or more within the tax year. As their employer, you should need to give your babysitter this form or advise them to file it for their taxes.
What are the IRS rules for paying caregivers? ›
Usually, private caregivers must be paid through official channels, so payroll taxes and unemployment insurance are addressed. Private caregivers must file taxes if they do not work for an agency. Employers must pay taxes and provide documentation to the IRS if they pay a caregiver more than $2,600 annually.
What is the difference between a nanny and a babysitter on taxes? ›
Most nannies are paid a salary; a babysitter more likely accepts an hourly rate. Still, the same tax laws apply to both types of caregivers in most cases. You're supposed to pay taxes on them much like you declare your child(ren) on your tax returns with the Child Tax Credit.
Will the IRS go after my babysitter? ›
In fact, the IRS is clear — in Publication 926 — that babysitters are listed as a type of household worker, which means taxes can come into play if you pay them enough money over the course of the year.
How much money do you have to make to file taxes? ›
Minimum Income to File Taxes in California
| IF your filing status is . . . | AND at the end of 2022 you were* . . . | THEN file a return if your gross income** was at least . . . |
|---|
| Married filing separately | any age | $5 |
| Head of household | under 65 65 or older | $19,400 $21,150 |
| Qualifying widow(er) | under 65 65 or older | $25,900 $27,300 |
2 more rowsThese forms generally report payments made “in the course of your business” and not your personal payments. Wages paid to a nanny are not considered business-related so Form-1099 does not apply to household employment.
Why do I need my babysitter's social security number for taxes? ›
Parents want this number so they can claim the federal child care tax credit. They can use either your Social Security number or a business identification number.. The reason child care providers don't want to pass out their Social Security number is because of the growing problem of identity theft.
What is the difference between a nanny and a babysitter? ›
Two of the biggest differences between a nanny and babysitter are their schedules and day-to-day duties. Nannies generally have a set schedule and typically care for their charges everyday or multiple days per week. Babysitters, on the other hand, are used less frequently and are on more of an as-needed schedule.
A family member pays you for care
According to JustAnswer, in 2022, if you get paid to be a caregiver and make more than $2,400, then whoever pays you is required to pay Medicare and Social Security taxes on the wages. Federal Medicare and Social Security taxes equal 15.3% of a caregiver's wages.
Do caregivers pay federal taxes? ›
Generally, you and the caregiver will each pay one-half of the 15.3%. In addition to Medicare and Social Security taxes, if you pay a caregiver more than $1,000 of wages in any quarter during the tax year, then you must also pay federal unemployment taxes (FUTA) on the caregiver's wages.
Are private caregivers tax deductible? ›
A full-time caregiver typically works 44 hours per week, which will cost approximately $68,640 annually. If your loved one's caregiver spends 70% of their time providing qualified long-term care or nursing services at 30.8 hours per week, then about $48,000 of their salary is eligible as a tax deductible expense.
Where to report babysitting income on TurboTax? ›
Self-employed caregivers
Regardless of whether you receive a Form 1099-NEC, you will need to report your income on Form 1040, Schedule C. This schedule is for reporting profits or losses from a business.
What expenses can a nanny deduct? ›
Expenses that are eligible to deduct are your nanny's pay, pay to a backup childcare provider, taxes you pay on your nanny's wages earned, and expenses paid to a nanny placement agency.
Can you claim child care expenses that are paid under the table? ›
In addition to the above, your child care expenses must meet all of the following criteria: your child care provider must be someone whom you can't claim as a dependent -- this may include a licensed day care provider, preschool, or on-the-books nanny but can't include anyone you pay under the table.
What tax deductions can a nanny claim? ›
Child and dependent care credit
Families with two working parents can claim up to $3,000 in childcare expenses for one child and up to $6,000 for two or more children in 2022. If your adjusted gross income is over $43,000, the maximum credit you can claim for your nanny's pay is 20% of your employment-related expenses.
Can I pay my nanny with Venmo? ›
While some nannies or household employees may be okay accepting cash or 'personal' payments on Venmo or another cash app, this is not a best practice, legally sound, or a professional way to retain top-quality employees.
