There are both direct and indirect tax credits you can qualify for when hiring a babysitter that can help increase your tax refund.
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Tax Benefits for Babysitting Expenses
There are three main tax benefits that you can use to help with babysitting expenses.
Employer-Provided Babysitting and Daycare Services
If your employer provides babysitting or day care services to employees, you often won’t have to pay taxes on that benefit. It works similarly to employer-provided health insurance and other tax-free benefits.
Note: You won’t qualify for other tax benefits based on expenses your employer pays. However, if your employer pays for part of the cost, you can use the part that you pay as a qualifying expense.
Child Tax Credit
The Child Tax Credit is a general tax credit for everyone that has qualifying children. While the child must qualify as your dependent, there is no requirement that you have specific expenses such as babysitting.
You can use the money from your child tax credit for anything your household needs.
A portion of this tax credit is refundable. Even the nonrefundable portion can lower your tax bill and get you a bigger refund of withholding taxes you paid during the year.
Child and Dependent Care Credit
The Child and Dependent Care Credit is for specific childcare expenses which can include babysitting. The babysitting can be done by almost anyone except your spouse, your dependent, or your child under 19.
The children generally need to be under age 13 to qualify for the credit. The babysitting also usually needs to be while you work or look for work. You can’t include hiring a babysitter for a date night.
The credit is worth up to 35% of your babysitting expenses depending on your income. In addition, your expenses are capped at $3,000 for one child or $6,000 for multiple children.
So your maximum tax credit is $1,050 (35% x $3,000) if you have one child or $2,100 (35% x $6,000) if you have multiple children.
The Child and Dependent Care Credit is not refundable in most years. It was made refundable in 2021 as part of COVID-19 relief.
Even though the credit isn’t refundable, it reduces the taxes you owe. If you didn’t adjust your withholding to account for this credit, you’ll get a bigger refund.
You can also adjust your withholding so you get a bigger paycheck each pay period without owing money or getting a refund at tax time.
Do you have to 1099 your babysitter?
You generally don’t need to 1099 your babysitter. In most cases, only businesses need to issue 1099s.
You do need to have proof of your expenses such as receipts, Venmo transactions showing details of the services provided, or similar documentation. If you pay your babysitter cash with no paper trail, you may not be able to show that you had qualifying expenses.
If your babysitter qualifies as a nanny (more regular schedule and more services provided), you may need to pay the nanny tax.