Whether you are considered an employer and have to pay payroll taxes for hiring a babysitter depends on the age of the person you hire, how much you pay in total for the year, and whether you can control how the babysitting services are provided.
Generally, if you occasionally hire a babysitter to take care of your child or children at home, you probably wouldn’t be considered an employer and would not have to worry about payroll taxes.
According to the IRS, you would be responsible for Social Security and Medicare taxes if you paid someone more than $1,800 (as of 2012) in cash or other equivalent compensation for the year. But there are exceptions and you would not have to count wages you paid to your spouse, your child under age 21, your parent, or a person who is under age 18 at any time during the year. So if you hire a teenager to babysit, the amounts you pay would not be subject to federal employment taxes. But the IRS points out that if providing babysitting services is the person’s principal occupation you would be responsible for federal employment taxes even if the person is under age 18.
If you paid someone who does not qualify for an exception but the total paid for the year was $1,800 or less (as of 2012), you would not be responsible for federal employment taxes.
If your babysitter is not included in the exceptions, according to the IRS the person would be considered a household employee if you can control the work to be done and also how it is to be done. It would not matter whether the employee is full time or part time, or that you hired the worker through an agency. If someone babysits for you in their own home, you could generally not control how the work is done; therefore that person would probably not be considered your employee.
If your babysitter is considered a household employee and you expect to pay him or her more than $1,800 during the year, you would be responsible for Social Security and Medicare taxes. The IRS points out that you are not required to withhold federal income tax from a household employee’s wages, but if they ask you to withhold, you can. Your babysitter would have to give you a Form W-4 for you to withhold federal income taxes. You would be responsible for paying the employee’s and employer’s portions of the Social Security and Medicare taxes. According to the IRS, you can either withhold the employee’s portion or pay it yourself.
If you choose to pay the Social Security and Medicare taxes yourself, instead of withholding them from the babysitter’s wages, the taxes you pay must not be included in the babysitter’s wages for federal income tax purposes. And the employee’s portion of the taxes that you pay would not be counted as Social Security and Medicare wages or federal unemployment wages.
If you pay cash wages of $1,000 or more (as of 2012) to household employees in any quarter last year or this year, except your spouse, your child under age 21, or your parent, you would also have to pay federal unemployment tax.
If you are required to pay federal employment taxes, you will need to get a federal employer identification number. You will also have to issue a Form W-2 to your babysitter by February 28 of the following year.
You report and pay your federal household employment taxes when you file your annual federal income tax return. You would attach Schedule H, Household Employment Taxes to your return. If you expect to owe federal employment taxes for household employees you may have to make estimated tax payments during the year or have more tax withheld from your own paycheck in order to avoid an underpayment penalty when you file your annual federal tax return.
If you own a business as a sole proprietor or operate a farm and you make federal employment tax deposits or other payments for your business or farm, you can include your household employment taxes in those deposits or payments.
If you are considered an employer, you may also owe state unemployment taxes. You should consult your state unemployment department to determine whether you are subject to state unemployment taxes and how to report and pay them. IRS Publication 926 has addresses and links to the websites of the state unemployment agencies.
Sources:
Apply for an Employer Identification Number (EIN) Online, IRS
Publication 926, Household Employer’s Tax Guide, IRS
Schedule H, Household Employment Taxes, IRS
Reference:
- General Instructions for Form W-2 and W-3: www.irs.gov/pub/irs-pdf/iw2w3.pdf
- Information to Tell the Babysitter: voices.yahoo.com/information-tell-babysitter-47489.html?cat=25
- IRS Publication 503, Child and Dependent Care Expenses: www.irs.gov/pub/irs-pdf/p503.pdf
