Tax filing season is just around the corner. As you prepare to dig out your annual stack of tax documents, round up your receipts, and calculate your deductibles, you might be wondering how to approach taxes regarding your babysitter. Do you need to issue your babysitter a 1099 or a file W-2? Do you file them yourself, or leave it up to the babysitter to report their income?
As a parent, it’s up to you to learn more about your tax obligations as an employer. To help you out, this guide will break down everything you need to know before the January 31, 2023 employer deadline. From understanding your sitter’s status as a working individual to navigating the required forms, this will simplify your tax prep process.
For more on the topic, here is also an in-depth guide to nanny taxes for reference. With these tools at your disposal, you can ensure compliance and avoid the risk of misclassifying your babysitter or nanny.
Is Your Babysitter an Independent Contractor, or an Employee?
Employees and independent contractors have vastly different obligations and entitlements. Thus, it makes sense that the government has different taxation requirements for each. So, before you start filing your taxes, it is crucial to identify your sitter’s status as a worker.
How the IRS Defines It
The Internal Revenue Service (IRS) defines three common law rules that distinguish employees from independent contractors:
- Behavioral Control. This refers to the extent of freedom professionals have over the services they render. Independent contractors have more control over their schedule, how to work, and what tools to use, while employees receive instructions from their employers. One may also be considered an employee based on the evaluation systems and training one receives.
- Financial Control. This reflects a professional’s ability to monitor and manage the financial aspects of the job. For instance, employees may have expenses reimbursed and are guaranteed a regular wage amount. Meanwhile, independent contractors often incur unreimbursed expenses. They also receive a flat fee, which means they may encounter opportunities for either profit or loss.
- Type of Business-Worker Relationship. This focuses on the nature of the connection between a professional and a business. In the case of babysitting, this could include the permanency of the job or whether the family provides benefits for the childcare provider.
How the Department of Labor Defines It
While the Department of Labor’s standards are largely similar to those specified by the IRS, there are slight differences that can help you make a more informed decision. The Fair Labor Standards Act (FLSA) defines employment relationships according to seven factors, namely:
- Importance of the services rendered to the principal’s business
- Job permanency
- The contractor’s investment in facilities and equipment
- The nature and degree of a principal’s control over the worker’s job
- Perceived opportunities for profit and loss
- The level of skill required in performing the expected work
- The degree to which the principal or their operations is independent
So, How Should You Classify Your Babysitters?
As you can already tell by the aforementioned factors, you can use a number of different criteria to classify sitters. How you classify your babysitter for taxes will greatly depend on their job responsibilities, as well as what you expect of them.
As a rule of thumb, babysitters can be classified as independent contractors if they:
- Can decide their work schedule
- Specify the scope of their responsibilities
- Have the freedom not to accept work from a family on short notice
Meanwhile, they are considered employees if they:
- Follow a regular work schedule dictated by the family
- Perform job responsibilities specified by the family
- Are expected to provide two-weeks notice before quitting
If you are still unsure about the matter, you can file a Form SS-8 to determine the status of a worker. Both parents and babysitters can request this. However, be warned that it can take up to six months to get a response from the IRS regarding this form.
Babysitter Tax Forms: 1099 or W-2? Or Nothing At All?
Figuring out which tax forms you need to file is confusing, especially with the wide variety provided by the IRS. However, it’s worth taking the time to understand their differences and purposes. Otherwise, you might make a mistake that could lead to tax discrepancies and gaps—or worse, penalties from the IRS.
But before you go selecting a form, do note: you are not legally required to submit any kind of tax form regarding a babysitter. The government considers babysitting a personal service, not a business expense. At the end of the day, it is your sitter’s responsibility to report their income to the IRS. However, should you choose to file tax forms (Babysitter Taxes and Forms) on their behalf—for your own bookkeeping, because they request it because you’ve spent enough on babysitting to qualify as an employer, or for other reasons—then you are completely entitled to do so—the choice is yours.
Should you choose to file on your babysitter’s behalf or are looking to provide them with guidance, the difference in the form will lay in their categorization. If they operate as an independent contractor, you will need to use a Form 1099-MISC, which is for taxpayers who received payments of $600 or more within the tax year. As their employer, you should need to give your babysitter this form or advise them to file it for their taxes. Most babysitters will fall in this category; the onus is on them to fill out their own taxes.
Meanwhile, if you have determined your sitter to be an employee, then a W-2 is more appropriate. Employers provide this form to report how much a worker was paid within the tax year. It will detail the state and federal income taxes withheld, as well as retirement plan contributions and other workplace benefits gained by the worker. Babysitters who meet the qualifications discussed earlier or who receive at least $2300 in wages within the tax year (as of 2021) can be considered employees.
To file a W-2, you will first need to get an employer identification number (EIN). You can do this by applying online or mailing a Form SS-4 to the IRS. Once you have your EIN, you will need to prepare a Form W-2 for your employee. Give your babysitters Copies B, C, and 2, and send Copy A to the Social Security Administration. You will also need to file Schedule H or household employment taxes alongside your Form 1040 to cover Federal Unemployment Tax (FUTA) and Federal Insurance Contributions Act (FICA) taxes.
Uncomplicate Babysitter Taxes and Forms
Babysitter services can often be a bit of a gray area come tax season since it is largely up to personal designation in an informal work relationship. However, the classification doesn’t need to be complicated! The details provided above can help parents and babysitters alike resolve the matter.If you run into further concerns about filing babysitter taxes and forms, be sure to consult your accountant or your preferred babysitter service.
For instance, Call Emmy offers a repository of resources for babysitters and parents. While primarily known for providing quality, on-demand childcare with their innovative babysitting app, Call Emmy also aims to provide helpful information on all aspects of childcare. Should you require more information, be sure to check out the website, and sign up for services today!