Here are the top things to know about babysitter taxes, hiring a babysitter or household employee, and filing taxes as a babysitter.
Are babysitters employees or independent contractors?
The first step is figuring out whether babysitters are employees or independent contractors. There are two separate sets of tax rules that apply to different situations.
Babysitters can be either employees or independent contractors.
Babysitters are usually independent contractors when they don’t have a regular schedule and only work on demand. Examples include babysitters who parents hire when they want a night out or have a late work meeting.
Independent contractor babysitters typically have more than one client. They may not be available when called if someone else already booked them.
Independent contractors also generally don’t have guarantees of future work. Even when the parents are happy with a babysitter, they might not know exactly when they’ll need a babysitter again.
Babysitters and nannies with regular schedules are generally household employees.
The schedule can be full-time or part-time. For example, a babysitter who is scheduled to come every Tuesday and Thursday will often be a household employee.
Another distinguishing factor of a household employee versus an independent contractor is how much work the parents ask the babysitter or nanny to perform.
Independent contractors usually only have broad instructions like keeping the kids alive, ordering a pizza at a certain time, and making sure they go to bed at the right time. Nannies might have more specific tasks such as cooking, cleaning, tutoring, and other services on a set schedule.
Babysitters Working Through Agencies
A babysitter who works for an app or agency may be an employee or independent contractor. It depends on the working arrangements.
Some agencies basically work like an Uber for babysitters and only handle scheduling and maybe payments. Those babysitters are usually independent contractors.
Other agencies provide specific training and have set guidelines to follow. They may also have rules requiring babysitters to be available at certain times. Those babysitters are employees.
W-2 or 1099 for Babysitting
The usual rule is that employees get a W-2 and independent contractors get a Form 1099. That rule applies to babysitters with a few key things to know.
Hiring a Babysitter
If you’re a parent, you generally don’t need to give a babysitter a 1099. Generally, only businesses need to issue 1099 forms.
If you hire a babysitter or nanny as a household employee, you generally will need to issue a W-2 at the end of the year. You may also need to withhold employment taxes and pay federal unemployment taxes.
There are a number of nanny payroll services you can use to make household employment taxes easy. For a small monthly fee, you can either report what you paid the babysitter or pay through the app. The nanny payroll service then takes care of all of the tax forms and withholding.
If you hire a babysitter or nanny through an agency and pay the agency, you usually don’t need to withhold taxes or issue a W-2. Since you’re hiring a company, it’s the same as you hiring a lawn mowing service and not having to issue tax forms to the individual workers.
As a Babysitter
If you’re a babysitter that works directly with parents as an independent contractor, you generally won’t get a 1099. You still have to report your income, though.
See: How to Report Cash Wages Without 1099 Forms
If you worked as a nanny or household employee, the parents should issue you a W-2 for each tax year.
If you worked through an agency or app, you may get a W-2, 1099-NEC, or 1099-K depending on your working arrangements. The forms will usually come from the agency rather than the parents.
Both 1099s and W-2s are usually due on January 31st.
Tax Requirements for Parents
If you hire a babysitter as an independent contractor, you don’t have to withhold taxes or issue a 1099. Many people make the mistake of stopping right here and deciding their babysitter is self-employed so they don’t have to do anything with taxes.
The IRS has very strict rules on when a babysitter is self-employed versus a household employee. That’s why I started this post off with determining whether a babysitter is an employee versus an independent contractor.
There are very large fines for worker misclassification, and the IRS pays close attention to how babysitters and nannies are classified. So it’s very important for household employers to follow the tax laws even when it seems easier to call a nanny self-employed.
Household Employee Taxes
If you hire household workers, there are several taxes you may be responsible for.
Federal Income Tax
You’re not required to withhold federal income tax from an employee’s pay as a household employer. However, this is an option you and your employee can agree to.
If you agree to withhold federal taxes, you’ll need to get a Form W-4 from your nanny in order to calculate the correct amount of withholding.
Social Security and Medicare Taxes
Social Security and Medicare taxes usually total to 15.3% of an employee’s pay. Normally, the employer covers half of these employment taxes and the other half is deducted from the employee’s pay.
With household employees, you generally need to deduct the employee’s share if you pay him or her more than $2,600 during the year (as of 2023).
You also have the option to pay the employee’s share of employment taxes yourself to avoid having to deal with payroll deductions.
Federal Unemployment Tax
Household employers are also responsible for federal unemployment taxes that go towards funding unemployment benefits.
You generally need to pay unemployment taxes if you pay a nanny more than $1,000 during the year. You’ll pay taxes on the first $7,000 in cash wages.
In this context, cash generally means any kind of money including paper bills, checks, and electronic payments. It generally doesn’t mean other benefits such as free housing or food.
Your state may also require you to withhold state income taxes, pay unemployment taxes, or take other actions. Ask a local tax professional about the specific rules for your state.
How to Make Tax Payments
You’ll generally pay any withheld federal taxes and taxes that you’re responsible for when you file your personal tax return.
You can pay taxes by
- Making estimated tax payments
- Asking your employer to increase your tax withholding
- Making an additional payment when you file your tax return
If you owe more than $1,000 at tax time, you may owe a penalty for not paying enough in taxes throughout the year. To avoid this estimated tax penalty, you should either make estimated tax payments or increase your withholding.
Tax Forms You’ll Need
There are two main tax forms you’ll need as a household employer.
If it’s your first time hiring a household employee, you’ll also need to go to the IRS website and request a free Employer Identification Number. You’ll need to include the EIN on your employee’s W-2.
If you withhold taxes, you’ll usually need to issue your babysitter or nanny a W-2 at tax time. Nannies need Form W-2 to file taxes because it shows what’s already been paid and what they owe.
You normally need to issue each W-2 by January 31st for income earned during the previous tax year.
Schedule H is part of your own tax return. You use this form to report what you paid your household employees and what taxes you owe on their pay.
If you made tax payments during the year and paid too much, you’ll get a tax refund. If you didn’t pay enough during the year, you’ll have to pay taxes when you file.
Use a Nanny Payroll Service
I strongly recommend that you use a nanny payroll service instead of trying to handle this on your own. It’s really easy to miss things or make a mistake that will get you fined by the IRS.
There are several nanny payroll services that only cost a few dollars per month and do everything for you. When you’re filing taxes, all you need to do is copy the forms they give you.
Can you deduct the cost of a babysitter?
You generally can’t take a tax deduction for hiring a babysitter. You may be able to claim the Child and Dependent Care Credit.
The Child Care tax credit generally applies when you hire someone to watch your child under age 13 while you work or look for work.
Parents can with children under 17 can also claim the general Child Tax Credit.
- IRS Publication 926: Household Employer’s Tax Guide
- IRS Topic 765: Employment Taxes for Household Employees
- IRS Instructions for Schedule H
How to Report Babysitting Income
If you receive a W-2 as a babysitter, add it to your tax return like any other job.
If you receive a 1099, you’ll need to complete a Schedule C as part of your Form 1040 Individual Tax Return. Don’t forget to add your business deductions (more below).
What counts as taxable income?
Everything a babysitter makes counts as taxable income including both their agreed rate and any tips.
It is not possible to give a babysitter a cash gift to avoid taxes. Gifts given because of services performed are considered a tip.
If you’re an independent contractor, don’t subtract your expenses when reporting your income. Report your gross income. You will fill in your deductions separately.
What taxes do babysitters pay?
All babysitters will pay federal income taxes based on their tax bracket. State income taxes may also apply.
Employee babysitters should have their Social Security and Medicare taxes withheld as described above. If your employer doesn’t withhold your share of these taxes, you will need to pay 7.65% for these taxes when you file your return.
Independent contractors are responsible for their own Social Security and Medicare taxes.
Contractors pay 15.3% because they pay both the employer’s and employee’s share of these taxes. Contractors can deduct one-half of their self-employment taxes on their income tax returns.
Tip: Reporting all of your income helps to increase your retirement benefits from the Social Security Administration.
What tax deductions can babysitters take?
Employee babysitters generally can’t deduct business expenses since 2018.
Independent contractor babysitters can deduct expenses like what you paid to advertise, payment processing services, and other expenses you have in your business.
You can deduct mileage when you’re driving between babysitting jobs or taking the kids you’re watching somewhere. You generally can’t deduct mileage to and from home since driving to and from your job is a nondeductible commuting expense.
You will also usually get an automatic 20% deduction from the Qualified Business Income deduction.
Babysitting income is earned income that qualifies for retirement savings. Both employees and independent contractors can contribute to a Traditional or Roth IRA.
Self-employed babysitters can also open up a SEP IRA if they want to save even more.
What is the business tax code for a babysitter?
If you’re a babysitter, the IRS will ask you to enter a business tax code. This helps their statistics but doesn’t change your taxes. You can enter 812900 — Other personal services.
When are babysitter taxes due?
Babysitters file their income tax returns by April 15th like everyone else.
Independent contractors also need to make quarterly tax payments if they will owe more than $1,000 in taxes. You can learn more about estimated taxes here.
How can you keep track of your income and expenses?
There are a number of inexpensive apps that automatically track your income and your expenses. You can also get an app that automatically tracks your mileage.
How do you file your taxes?
It’s easy to do your taxes yourself if you keep good records. DIY tax software will guide you through everything you need to know. There are several tax filing services that you can use.
How much does a babysitter make?
The average rate for a babysitter in most states falls between $13 and $18 per hour.
Rates may be higher in high-cost-of-living areas, if the babysitter provides special services like tutoring, or if the babysitter is just plain good.
How much a babysitter makes per year varies widely based on how much work they take on.