Do I Have to Pay Taxes for Babysitting?
Employers withhold taxes from employee income to pay the Internal Revenue Service for the employees Social Security tax, Medicare tax and income tax. Workers who take odd jobs often have no employer and do not have taxes withheld from income. According to the IRS, "earnings you received from self-employment are subject to income tax and these earnings include income from odd jobs like babysitting and lawn mowing."
Self Employment Tax
There are two main categories of taxes that self-employed people must pay: income taxes and self employment taxes. Income taxes are taxes based on the total amount of income you make in a year which are paid by all workers. The self employment tax (SE tax) is a tax owed by self employed workers that amounts to 15.3 per cent of income earned. If you do not earn a certain minimum amount from babysitting, you may not owe self employment tax (SE tax) on the income. According to the IRS, "if you have net earnings of £260 or more from self-employment, you will have to pay self-employment tax." In other words, if your income from self employment is less than £260, you are not subject to the SE tax.
Teen workers may be exempt from SE taxes on income earned through babysitting. The IRS gives tax privileges to teens working traditional part time jobs like babysitting and lawn mowing. According to Bankrate, babysitters are considered household employees and "a household employee who is younger than 18 at any time during the tax year the work was performed is not subject to Social Security and Medicare taxes." This does not, however, exempt the teen from normal income taxes.
Babysitters who owe income tax and SE tax must submit estimated tax payments to the IRS just like other self employed business owners and independent contractors. Estimated payments should include both income taxes owed and SE tax; estimated payments may also be due to your state. Estimated taxes are paid on a quarterly basis.
Since taxes are not withheld from babysitting income and transactions are often made in cash between the parents and babysitters, it can be easy to lose track of income earned. It is important to keep detailed records of income earned to file accurate tax returns. Failing to report taxable income can result in tax penalties.