Babysitting & taxes?

Question

Hi Everyone,

I'm thinking of babysitting my niece 5 days a week. My brother has offered to compensate me. Our questions are: 1) Do i need to declare the income when tax time comes around? 2) Do they need to declare themselves as my "employer" in order to get a tax credit for child care (does such a credit exist?)? We've looked at the paperwork for them to be my employer, and it looks so confusing. 3) Is there anyting else we should be thinking about regarding declaring income, tax credits, etc?

Thanks!

Answer 1

Yes legally you have to declare the income when tax time comes.
Your brother can get the child tax credit regardless. To get the dependent care credit also, he would have to declare that he paid you and give your social security number. There are two ways to do this:
He can declare himself your employer (yes the paperwork is complicated).. he would then pay 7.53% social security and unemployment taxes for you. You would pay 7.53% social security and income taxes.
Or you can declare yourself to be an independent contractor, in this case you just need to fill out Sch C when you file your taxes. You will pay 15% social security in addition to income taxes, but you can get a deduction for half that amount. If babysitting is your only source of income, going the independent contractor route will probably result in lower taxes overall and also be easier to do the paperwork.

Answer 2

To be legal, yes, you do have to report it on your taxes. And yes, there is a child and dependent care credit that they'll then be able to claim.

There are two ways to do it, either with you as their employee or as an independent contractor. Employee is probably more accurate if you're babysitting in their home; if you're doing it in your home, then independent contractor might be closer to the way it should be set up. Employee is probably a bit more paperwork. Either way, and no matter where you're doing the babysitting, the IRS probably won't object, since they'll be getting their taxes, and total taxes wouldn't be much different no matter which way it was structured. Your brother can take the credit either way.

If you're an employee, then they'd pay half of your social security and you'd pay the other half. If you're an independent contractor, you'd pay both halves, so that should probably be taken into consideration when setting rates. Each half is 7.65% of what you make, so the total is 15.3%.

Answer 3

To be legal they have to pay you and withold taxes. They also have to pay social security and other taxes required by the state in which you live. Workers compensation insurance might be required.

You in turn would have to declare your income and pay taxes on it.

If they can't prove they paid for child care, they can't claim a child care credit. I don't know if they would qualify or not. They should ask their accountant.

Needless to say this is expensive.

You'll have to use your imagination and see if you can come up with a better solution.

Answer 4

Keep records of how much they are paying you. When you file, list yourself as self-employed. That's a much easier way to go. You don't need a tax identification number (you can use your SSN) BUT you might need a license to do child care in your state.

The IRS has more info on their website:
http://www.irs.gov/businesses/small/article/0,,id=115045,00.html

Answer 5

the proper thing is for your brother to be your employer and withhold taxes, report your income on a W-2... and that way he can get the tax credit. Our firm handles these and all the paperwork.

Answer 6

That is ultimately up to your brother. Only if he declares you as the "daycare", could you then declare it on your taxes. Consider this....how much money the government already makes!!! As long as he doesn't say anything, then neither do you.

Answer 7

Don't do it until you have to!

Enjoy your babysitting money!