Do I need my babysitter’s Social Security number?

Mary Poppins might play hard ball if you ask for her social. Here’s a spoonful of tax advice to help you get her on the books.

Do I need my babysitter’s Social Security number? You do.

That is, if you hope to take a dependent care tax credit on your federal income tax return without running into problems with the Internal Revenue Service.

The child and dependent care tax credit is for working parents who pay for the care of one or more children younger than 13. To qualify, you have to tell the IRS how much money you paid and to whom — by name, address and Social Security number.

Problem: My Babysitter Doesn’t Want to Give Me Her Social Security Number for Income Taxes

Here’s the big problem: Lots of babysitters want to work off the books. They’re not reporting all their taxable income to the IRS and don’t want themselves exposed, so they won’t give out their Social Security numbers. What’s an honest taxpayer to do?

The IRS says you can still get the credit, as long as you show that you tried to get your babysitter to cooperate. You might write the sitter a letter, asking for the Social Security number, or send several emails. When you fill in Form 2441 (the form you use to claim the credit), attach a statement saying that you couldn’t get the sitter’s number, plus copies of the letters or emails you sent. And that meets all the tax responsibility for the babysitter. (Assuming that you have the sitter’s address, the IRS might try to track him or her down at tax time.)

Unless you’ve paid an individual babysitter more than $2,600 in the year. That’s when you might need to pay nanny taxes.

As in, their income becomes subject to federal income tax withholding.

And you and the sitter both have to pay your part of Social Security and Medicare taxes since they’re your household employee.

They’re Just the Babysitters, Not Household Employees, right?

It depends on how much you paid each one. Did you pay your babysitter more than $2,600 in 2023?

Then he or she isn’t merely a babysitter. Even if they’re not a full-time nanny, this could be their principal occupation. They’re a household employee, and you’re a household employer, meaning you have household employment tax requirements. A regular babysitter can be an employee. You should be paying Social Security taxes and federal unemployment taxes on his or her earnings.

Also known as nanny taxes.

Now, the IRS considers babysitters who earn less than $2,600 to fall under the “casual babysitting exemption.” As in, you don’t have to manage a payroll and withhold income taxes. However, this term does not apply to all babysitters and is simply a convenient term used by the IRS. According to Publication 926, the IRS classifies babysitters as household workers, which means you may need to pay employment taxes if they earned money throughout the year. 

Also, you do need to pay federal unemployment taxes on the first $7,000 for the year that the babysitter earned. Babysitting taxes can make a complicated federal tax return, so be sure to contact a tax professional to help you with your new role as a household employer.

Federal Income Tax Breaks You Can Claim When You Get a Babysitter’s Social Security Number

After all the babysitting taxes you owe, what about getting a tax refund?

As for the tax break itself, the dependent and child care credit applies to the first $3,000 in child care expenses for one young child and $6,000 for two children or more. People with low adjusted gross incomes ($15,000 or less) can reduce their taxes by 35 percent of their qualifying expenses. Expenses include babysitting, day care, day camp and nursery school, but generally not kindergarten or sleep-away camp. As income rises, the credit declines. It’s worth 20 percent of your child care expenses on incomes of more than $43,000. You also can’t count child care payments made to your own child who’s younger than 19 or anyone you claim as a tax dependent.

You’re a working parent even if your job is only part time or you’re self-employed and work from home. If you’re married, you and your spouse have to work, except if one spouse is incapacitated or attending school full-time.

If you’re paying cash wages off the books, you’re running a tax risk yourself. Let’s talk about making that right.

Make Your Babysitter Tax Official: How to Report Cash Wages Paid With Form 1099-MISC

When it comes to paying your babysitter or nanny, it is important to understand your tax responsibilities as a household employer. If you pay your caregiver cash wages of $600 or more in a year, you are required by the IRS to report those wages using Form 1099-MISC. This form is used to report miscellaneous income, which includes cash payments for services performed by individuals who are not employees. By reporting cash wages paid to your babysitter, you are ensuring that they receive the proper credit towards their Social Security and Medicare taxes. It also helps you fulfill your tax obligations as an employer, avoiding any penalties or legal issues. Form 1099-MISC should be filed by January 31st of the following year, and a copy must be provided to your babysitter for their own tax reporting purposes. By making your babysitter’s tax official, you are ensuring compliance with the IRS and maintaining transparency in your financial transactions.

Quarterly Estimated Payments of Income Taxes

It’s your responsibility as an employer to make quarterly estimated payments of income taxes.

By making these payments, you can avoid owing a large amount of taxes when you file your return. To do this, you will need to file Schedule H (Form 1040), Household Employment Taxes, along with your annual tax return.

To calculate your estimated tax payments, you can use Form 1040-ES, Estimated Tax for Individuals. This form helps you determine how much tax you should pay during the year to avoid underpayment penalties. It also provides a convenient payment voucher to send your payments to the IRS, using the funds you withheld from your babysitter’s income. 

It’s important to note that if you don’t make these estimated payments, you may be subject to underpayment penalties. These penalties can increase the amount you owe and add an unnecessary financial burden.

To avoid any complications, it’s recommended to consult a tax professional who can guide you through the process and ensure compliance with household employment tax regulations. They can help you accurately calculate your estimated tax payments, file the necessary forms, and stay up to date with any changes in tax laws.

Remember, by making quarterly estimated payments of income taxes, you will not only fulfill your tax responsibility as a household employer but also avoid any potential penalties or interest charges. Stay organized, track your payments, and consult a tax professional when needed to make this process hassle-free.

Federal Unemployment Tax (FUTA) and State Unemployment Insurance Taxes

The Federal Unemployment Tax (FUTA) is a tax that household employers must pay if they paid cash wages totaling more than $1,000 to household employees in any calendar quarter. This tax applies to the first $7,000 of cash wages paid to each employee, excluding wages paid to a spouse, child under 21, or parent.

Does that apply to you? 

Remember paying taxes to state unemployment funds? You can take a credit against your FUTA liability for amounts paid to them. It’s important for household employers to understand their tax responsibilities when it comes to employing household workers. FUTA is one aspect of these responsibilities. So are state Unemployment Insurance (SUI) taxes, which alter from state to state. You can qualify for a tax credit based on what you paid the state, but that credit can be reduced. The tax credit reduction is determined by the federal government and is applied to states that have outstanding loans in their unemployment trust funds. Household employers are subject to the same SUI tax credit reduction requirements as other employers, and if their state is behind on the unemployment benefits insurance from the federal government, that can increase the tax burden for the household employer and impact their overall tax liability.

If you are a household employer and are unsure about your tax responsibility, it’s recommended to consult with a tax professional who can guide you through the process and ensure you are in compliance with all relevant tax laws.

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