Many teenagers make money by babysitting for neighbors and friends. Babysitting is a terrific job for a teen and has some tax advantages that you may not know about:
Several years ago a special category of workers was created called household employees. Parents reading this may remember that during the 1990’s, several federal cabinet appointees were found to be in violation of tax rules concerning their household help, specifically nannies and gardeners. Congress addressed the issue by updating and enforcing the “nanny tax,” so that employers would start paying Social Security and Medicare taxes on their hired nannies.
Suddenly, Americans started asking about their teenage babysitters. Would they be required to pay employer taxes on their 15-year-old neighbor girl so they could have a night out? It seemed pretty ridiculous.
Fortunately, sanity prevailed and there are exceptions to the nanny tax rules! An employer does not have to pay employer taxes if these three conditions exist:
- the employee is under age 18 at any time during the year and
- the work is in or around a private residence as an employee and
- the employee’s main occupation is not providing household services.(For a teenager, their primary occupation is to be a student, not a babysitter.)
All three things must be true to be exempt from employer and self-employment taxes.
Example:
Sarah, age 16, goes to a neighbor’s house and babysits their three children several times a month. In one month she makes $75. She is a teenage household employee. Sarah will not owe self-employment tax on her babysitting income. If she earns less than $6,300 (in 2015), she will not owe federal income tax either.
If Sarah decides to run a day care service during the summer from her home, she is not a household employee, but rather a business owner. She will then owe self-employment tax (and perhaps federal income tax) on her profit.
Read more about household employees and the nanny tax in IRS Publication 926 Household Employer’s Tax Guide at https://www.irs.gov/pub/irs-pdf/p926.pdf.
In my book, Money and Taxes in a Micro Business, I devote an entire chapter to babysitting and other household employee jobs including examples, forms, and instructions on how to fill in tax forms correctly!
Carol Topp, CPA is the author of the Micro Business for Teens books.
Hmm…What about a situation where I am paying my 20-year-old daughter to watch my younger children while I am out working on my own business. I do deduct the “child care” expense, but it hadn’t occurred to me that I might need to pay employer taxes for her.
Read IRS Publication 926. https://www.irs.gov/publications/p926/ar02.html#en_US_publink100086722
Table 1 says “Do not count wages you pay to your child under the age of 21”
So looks like you do not have to pay SS/Medicare taxes on her since she was under age 21.
Thank you! She will be 21 this summer, though. Will I need to start paying employer taxes for her then?