How to Pay Taxes For a Babysitter

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by Advice Chaser
by Advice Chaser

If you ever babysat as a teenager, you were probably paid in cash. You didn’t pay taxes on that income, and neither did your charges’ parents. If a teen is babysitting once in a while for spending money, that’s perfectly valid. But when you hire a nanny or babysitter as a regular employee, you are legally required to pay taxes.

Some parents still don’t follow the law. But it hurts your sitter when you do that, because as long as you don’t pay the proper taxes, they aren’t earning Social Security credits. They also won’t be eligible for unemployment benefits. Do your child’s caregiver a favor and keep them on the books instead of under the table.

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Is Your Babysitter Your Employee?

The crucial question to answer, when trying to figure out if your babysitter counts as your employee, is who maintains control of where and how the babysitter does their job. If your child is in a childcare center, obviously, the center is making most of the decisions by itself. The same is true of most home daycares.

But if the sitter is in your house, following your specific instructions for childcare and using your supplies, it’s very likely they are your employee. However, if you hired the sitter through an agency, you can ask your sitter if they are employed by the agency. Often sitters’ agencies only provide listings and don’t directly employ anyone, but if the agency pays the sitter directly, the sitter is the agency’s employee, not yours.

The second determining factor is how much you pay the sitter annually. If you occasionally hire a sitter for an evening out, it’s likely you won’t reach that level. The bar is set at $2,100 annually, so if you pay less than that over the course of a year, your sitter is not your employee.

Do You Have to Withhold Taxes for Your Babysitter?

If your babysitter does not count as your employee, you don’t have to pay any taxes for them. They will calculate and pay their own taxes on their self-employment income, if they make enough to need to file.

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.

You do not have to withhold income tax from your babysitter’s wages. They can pay this amount on their own taxes, unless you have agreed to withhold it for them.

If your sitter makes over $1000 per quarter, you also have to pay unemployment tax (FUTA). But FUTA is only calculated on the first $7,000 of the sitter’s wages. That’s only 6%. So, if the sitter makes over $7,000 a year, that’s only $420 you owe for the entire year.

An Example

For an example, let’s imagine you hire Mary Poppins to take care of your two precious children. Since Mary works in your house, according to your instructions, she is your employee. You pay her $20 an hour, and she sits for your children 20 hours a week. In total, she makes $20,800 a year.

Since she makes more than $2,300 a year, you have to pay FICA tax. Your share and her share are each 7.65% a year. This means you will deduct $1,591.20 from her paycheck annually, and add $1,591.20 of your own money. That adds up to $3,182.40 in total FICA taxes you now owe—though you may recoup this amount through tax credits.

In addition, since she makes over $1000 quarterly, the first $7000 of her wages are subject to 6% federal unemployment tax. That’s an additional $420 you owe from your own money, not deducted from Ms. Poppins’ paycheck. You may also owe additional state unemployment tax, though if so, your federal unemployment tax may be reduced.

Mary takes home $19,208.80 for the year, divided monthly or weekly. She pays income tax on this amount herself. You pay $3,602.40 for the year, added onto your normal taxes, either quarterly or in the spring.

How Do I Withhold Taxes?

Unfortunately, the paperwork involved in filing the right taxes can be complex. If you already use a tax preparer, they can help you with the process. If not, you’ll need to fill out the following forms yourself:

  • I-9. This form verifies your babysitter is legally able to work in the US. Your sitter should fill it out by their first day of work, and you will fill out a portion affirming you’ve seen the documentation required, like their Social Security card.
  • W-4. Only have your sitter fill this out if you have agreed to withhold income tax for them. Since this is complicated, it may be best to tell them to pay income tax on their own return.
  • SS-4. This is your application to the IRS for an Employer Identification Number (EIN). You will need this on future tax forms.
  • W-2. This form records all wages you’ve paid. It needs to be turned in after the tax year ends, by January 31. Copies B, C, and 2 go directly to your babysitter. Copy A will go to the IRS.
  • W-3. This form goes to the IRS along with the copy of W-2.
  • Schedule H. This worksheet is attached to your usual 1040. This calculates your tax liability for household worker taxes, and the total will carry forward onto 1040.
  • Your state tax return. States vary in their expectations, so look up the requirements in your state.

How to Pay

So when do you actually pay the taxes? You pay them as part of your usual tax liability when you file your 1040. Despite all this complicated paperwork, babysitter taxes are no different from the rest of your annual taxes and go to the same place.

However, when you owe a lot of taxes, the government wants to receive the money quarterly. We’ve discussed how to pay quarterly taxes before, but in this case the simplest thing to do is increase your withholding from your own job. That way, you won’t owe a large amount in the spring.

One advantage that may help offset the cost of these taxes is the Child and Dependent Care Credit. You can receive this tax credit for money you paid to a babysitter or daycare to care for a child under 12 so that you could work or look for work. 

Help With Taxes for Your Babysitter

Figuring out if you will owe taxes for your babysitter, how much you owe, and how to pay it can be complicated. If you’re considering hiring a nanny or sitter for a significant number of hours in a year, you might discuss it first with a financial advisor to help decide if you can afford it. We can connect you with a skilled advisor who knows the ins and outs of your obligations. Contact us to get started.

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