It's very common for parents to hire someone to watch their kids for date nights or for a few hours after school. But what you may not realize is that you're actually setting up an employee/employer relationship that has potential tax implications, depending on the babysitting schedule.
Who Has to Pay Babysitter Taxes?
The IRS says that any household employee (babysitter, nanny, senior caregiver, etc.) that earns $1,800 or more in a calendar year has to have taxes withheld — just like when you work in an office. And the caregiver and the employer (that's you!) have to pay their share of FICA taxes.
It doesn't take long to cross this wage threshold, either. Let's assume you pay your babysitter $10 per hour. Now, consider the following scenarios:
- The Date Night Sitter. This babysitter watches your kids for five hours once a month so you and your partner can enjoy a much-needed night to yourselves. At the end of the year, your sitter will only make $600, so you have no tax responsibilities. The IRS calls this the “casual babysitting exemption” because there's no reason to burden the family with tax rules for such an infrequent work schedule. But if you have a once-a-week date night, that end-of-the-year number jumps to $2,400 and the tax rules apply.
- The After-School Sitter. You hire a sitter to take care of your kids for three hours, Monday through Friday, for the time between when the kids are released from school and the time you make it home from work. The babysitter makes $150 per week, but after only 12 weeks, they will hit the $1,800 mark.
Many families don't realize certain tax rules apply to them. By the time tax season comes around, many choose to keep their babysitter “off the books” because they've paid in cash all year or treat them as an independent contractor and provide her with a Form 1099 — both of which are incorrect and are potentially expensive tax mistakes. That's why it's so important to understand the basics of household employment taxes to keep you free of risk and eligible for tax breaks to offset your employer costs.
What makes a babysitter an employee?
It's all about who's in control of the working relationship. Babysitters are always your employees — not independent contractors — because you control the schedule, how long your sitter works, what activities are appropriate for the children, etc.
If you provide Form 1099 to your babysitter during tax season, you're misclassifying your employee. In the eyes of the IRS, this is tax evasion and can come with very heavy fines if you're caught via an audit or wage dispute filed by the sitter. Instead, you should give your babysitter a W-2, so they can file their personal income tax return.
What babysitter taxes should families withhold?
Babysitters that earn $1,800 or more in a calendar year must have Social Security and Medicare (FICA) taxes withheld from their pay. While you're not required to withhold federal and state income taxes, it's highly recommended, so your sitter doesn't have to pay these taxes on her own during tax time or throughout the year.
What babysitter taxes do families pay as employers?
You'll pay Social Security and Medicare taxes as a percentage of the wages you pay your babysitter. You're also responsible for paying federal and state unemployment insurance taxes, usually on a quarterly basis.
What are the benefits to families that do all this work?
Why go through all of this extra hassle, just for a sitter? The government rewards families that follow household employment tax requirements. As long as both you and your partner work full-time or are enrolled in school, you're entitled to two tax breaks if you have child care expenses — such as a babysitter's wages:
- Flexible Spending Account (FSA). Also known as a Dependent Care Account, an FSA allows you to pay for up to $5,000 of child care expenses using pre-tax dollars. That means this portion of your income is not subject to FICA, federal or state income taxes. Depending on your marginal tax rate, an FSA can save approximately $2,000 per year. FSAs are administered through the HR department of most companies and open enrollment usually occurs each year during the fall.
- Tax Credit for Child or Dependent Care. If you miss FSA open enrollment or don't have access to one, this tax credit will provide you with up to 20 percent savings on up to $3,000 of child care expenses for one dependent ($600) or $6,000 for two or more dependents ($1,200). You just need to file IRS Form 2441 with your personal income tax return.
Using one or both of these babysitter tax breaks can actually offset your employer taxes — to the point where you break even or even come out ahead. Paying your babysitter “on the books” can actually save you money! It's a wonderful reward for simply following the rules.
Stephanie Breedlove is the VP of Care.com Homepay, where she helps families to simplify and understand their responsibilities as employers of caregivers or household workers. She is one of the country's leading experts on household employment tax and labor law. When she isn't busy keeping up with her two grown boys, Stephanie enjoys spending time outdoors in and around the Austin area hiking, biking and fishing.