Many full-time and part-time nannies babysit or temp on the side for extra income. So in addition to their regular wages that are reported on their W-2 forms, they have a year’s worth of extra cash income to deal with at tax time. If you’re one of these nannies, this article will give you the information you need to handle that extra income in the right way.
Is babysitting money taxable?
Lots of nannies think if they earned less than $2,000 last year from a family, that income is tax-free. No such luck. The $2,000 threshold applies to parents, not nannies. So if a family paid you less than $2,000 in 2016, the family doesn’t have to report or pay taxes on those wages. However you still have to report and pay (some) taxes on those wages. (It’s the IRS, did you expect this to make sense?) And those wages can add up. If you babysat for 5 families throughout the year and each family paid you $1,000 in babysitting wages, you have an extra $5,000 to report.
Do I have to earn a certain amount before I have to report it?
The majority of sources say that all income must be reported although there are some that say there are very low minimum limits. Since I’m not a tax professional, I’m going to leave this question open. However I will say it’s a solid bet you need to report all your babysitting income.
I know I’m an employee when I work as a nanny. Am I an independent contractor when I work as a babysitter?
No, you’re an employee when you work as a nanny and you’re an employee when you work as a babysitter.
So how do I report my babysitting income?
OK, before I tell you the how, I really want you to understand the why. The why of taxes is important for every nanny to know since so many employers don’t. And with knowledge comes the power to advocate for yourself.
So first, when you work as a nanny or babysitter for a family, you’re considered an employee and the parents are considered employers. The parents are required to pay taxes on the wages they pay you. They must pay (from their pocket) their portion of Social Security / Medicare (7.65% of your wages) and withhold (from your pocket) your portion of Social Security / Medicare (7.65% of your wages). To make things easier for families that just use an occasional babysitter, the IRS lets families that pay their caregiver less than a certain amount, $2,000 for 2016, off the hook for these taxes. (This amount is staying $2,000 for 2017.)
Second, people that are self-employed (commonly known as independent contractors) have to pay self-employment taxes or both the employer and employee portion of Social Security / Medicare. These self-employment taxes are 15.3% of all the wages they earn. The IRS has clearly stated that nannies and babysitters are NOT independent contractors.
So when you’re reporting babysitting income, you’re reporting wages you earned as an employee, not as an independent contractor. Since the family that paid you didn’t have to pay their portion of Social Security / Medicare because of the $2,000 threshold, you don’t have to pay your portion either. So it’s essential that you report these wages in the correct place to avoid paying these taxes.
Report your babysitting income as “other income” on Line 21 of IRS Form 1040. Kathy Webb of HomeWork Solutions recommends that nannies write “household employment not subject to SS/Medicare tax’ on line 21 to detail where the income is coming from.
If you have several families that have paid you a significant amount throughout the year, Kathy Webb suggests writing “see attached Line 21 schedule” on line 21 and attaching a simple summary of the income for clarification. This isn’t a requirement and there’s not a set threshold that determines what a “significant amount” is but these details help the IRS know exactly what you’re reporting.
Jones Family, address, $1,200
Smith Family, address, $1,000
Carpenter Family, address $800
Davis Family, address $1,000
Webb Family, address $1,500
Total Line 21 $5,500
Remember you’ll still owe state and federal income taxes on your babysitting income but by reporting it correctly on line 21, you’ll get out of paying Social Security / Medicare taxes. For those that make the mistake of reporting babysitting income as self-employment income, you’re on the hook for that extra 15.3% in self-employment taxes.
My babysitting family wants my Social Security number so they can provide me with a 1099?
If the family asks for your Social Security number, chances are they’re applying for a tax credit and need to prove how much they paid their caregiver. They’ll most likely provide you with a 1099 that lists your babysitting income. Make sure they list your wages in Box 3, not Box 7, of the 1099. This allows you to list those wages as “other income” and avoid self-employment taxes. Kathy Webb warns “Do not accept the 1099 if your babysitting income is reported in Box 7.”
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