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
If your babysitter counts as your employee, you must withhold Social Security and Medicare taxes, known collectively as FICA taxes. You pay half, and your employee pays half. Each of you pays 6.2% for Social Security and 1.45% for Medicare, meaning a total of 15.3% for both of your contributions.
Should I pay taxes for babysitting? ›
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.
What are the IRS rules for paying caregivers? ›
If the caregiver is classified as an employee, then the employer must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay state and federal unemployment taxes on the wages paid to the caregiver.
Do I need to give my nanny a 1099? ›
Under California labor law (and federal and state tax law) you are the nanny's employer. This means, among other things, you will need to file a Form W-2 with the IRS instead of a 1099, as you would for a contractor.
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.
Does babysitting count as income? ›
Yes. Your mother is responsible for reporting babysitting income in the circ*mstance you have described. Reporting babysitting income as wages is required if she: Was subject to your will as to what and how the babysitting duties were to be carried out.
How much can a babysitter make before filing taxes? ›
“The IRS says if you earn $2,700 or more from any family in a calendar year and you don't own your own business or work for an agency, that family should be withholding taxes from your pay and paying their share of taxes as well.”
Do caregivers have to pay federal income tax? ›
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 caregivers exempt from federal income tax? ›
Caregivers have unique classifications when it comes to filing taxes. For example, family caregivers are usually not employees, so they don't need to pay taxes. However, if they receive a Form 1099-MISC from insurance, they should report that income when filing.
Is paying for a caregiver tax deductible? ›
You may be able to claim tax credits and deductions if you need to hire help within your home to care for dependents or provide them with medical assistance. If you spend more than 7.5% of your adjusted gross income on qualified medical expenses, you can claim the excess on an itemized tax form 1040.
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 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.
Should I give my nanny a W-2 or 1099? ›
The confusion is understandable. However, knowing which form to use is important. The Internal Revenue Service classifies nannies as household employees. Therefore, families must report them by using a Form W2.
Will the IRS go after my babysitter? ›
The babysitters still must report their income to the IRS. However, you don't need to issue a Form 1099-MISC or withhold taxes. This is because you aren't paying the babysitter in the course of your trade or business. Payments are a personal expense.
Does my mom have to file taxes for babysitting? ›
Technically your mom or dad are independent contractors if they babysit at their house. But if someone babysits at yours, then they're considered a household employee, although you don't need to issue a W-2. You also don't need to withhold Medicare or social security (FICA) taxes—even if you pay them more than $2,400.
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.
How much income do I need to make to file taxes? ›
So as long as you earned income, there is no minimum to file taxes in California. It is a good idea to talk with a tax professional to determine your filing status and whether you are required to file or could benefit from doing so anyway.
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.
Does Care.com give you a W-2? ›
Here are two ways to know that you're a household employee: If you receive a Form W-2 through Care.com HomePay. If you earn more than $2,600 in a year from a single family doing any kind of care work — including childcare, eldercare, or housekeeping.
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.
