Many families have a regular babysitter or nanny, or even a babysitter to help over school holidays. This extra set of hands caring for your children allows you to meet your obligations professionally and as a parent. Do you pay your babysitter or in-home childcare provider cash, thinking this is just babysitting and never considering payroll taxes? Have you wondered if babysitter taxes even exist? They do – and if you fail to pay them and the IRS finds out, this could result in some hefty penalties or fines.
But, don’t panic right away.
If you pay your babysitter less than $2000 a year (2016), you will be exempt. But, if your babysitter is 18 or older and you end up paying more than that amount, the IRS will consider this a household employment situation and you will need to calculate babysitter taxes into your budget. That means you’re responsible to withhold FICA taxes, and state and federal unemployment insurance taxes may also need to be applied. Not sure if your babysitter qualifies as a household employee? Check out the IRS Publication 926 to find out who qualifies as an employee and who does not.
What about a babysitter that ends up working more than 40 hours in a week for you? Are they entitled to overtime pay? Bob King from Legally Nanny says, “Overtime is very fact specific. Whether or not a nanny is entitled to state and or federal overtime will depend on her job duties and other details of her job such as whether she works in a private home and whether she lives in or lives out. There is no "one size fits all" determination regarding whether overtime applies. Employers must analyze it on a case by case basis.”
We know that it can get complicated. But, when you plan ahead and pay your babysitter correctly from the beginning, you won’t have to worry about unexpected fines or penalties down the road. If you’re not sure how to handle the tax portion of your babysitter’s pay check, or if the thought of paying your babysitter's or nanny’s taxes makes you fearful of doing it the wrong way, call us for a free consultation. Our household payroll tax services will help you get registered with the IRS and the state you live in, in addition to getting tax ID numbers and everything else that goes along with paying and reporting your nanny taxes accurately.