A lot of teenagers make money by babysitting for neighbors. Babysitting is a terrific micro business for a teenager and there are tax advantages that you may not know about.
Babysitters are Considered Household Employees
Babysitters are considered household employees . They are an employee of the family hiring them. A babysitter usually owes income tax on her income from babysitting.The employer also have to pay Social Security and Medicare taxes on their employees behalf. This tax is nicknamed the “nanny tax.”
But, there is a huge exception to the nanny tax for teenagers!
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 house hold 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 $5,700 (in 2009), 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 be 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.
For more information about taxes on teenagers, and read my book Money and Taxes in a Micro Business available at MicroBusinessForTeens.com. I discuss babysitters and other household employee jobs including examples, forms and instructions on how to fill in the tax forms correctly. You’ll get accurate information that’s easy to understand.
Carol Topp, CPA
