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When the ‘nanny tax’ applies to a babysitter

If you pay your babysitter at least $2,700 for the year, you likely have tax obligations.

When the ‘nanny tax’ applies to a babysitter

Many families need only part-time or occasional child care assistance, instead of a full-time nanny. And while you may think that you’re not obligated to pay employment taxes just for hiring a date night babysitter, after-school sitter or backup caregiver, in some circumstances the IRS begs to differ.

I thought babysitters were exempt from taxes. What am I missing here?

The truth is, it’s not what you call your sitter that matters: It’s how much you pay them, cumulatively, over the course of a calendar year. If you pay any of your babysitters more than $2,700 in calendar year 2024, you’re subject to household employment – or “nanny tax” — requirements.

We understand that families can easily be caught off-guard by the notion of paying nanny taxes, so we’ll answer a few common questions we get about this topic.

There is a term, the “casual babysitting exemption,” that is used to refer to a child care worker who does not earn enough money to be subject to payroll tax withholdings. But that doesn’t mean it applies to all babysitters: It’s merely a convenient term the IRS uses. In fact, the IRS is clear — in Publication 926 — that babysitters are listed as a type of household worker, which means taxes can come into play if you pay them enough money over the course of the year.

Why am I responsible for keeping up with payroll and taxes for my babysitter?

Let’s go back to the relevant IRS statute — again, IRS Publication 926 — which states that a babysitter can be considered your household employee if you’re controlling not only what work is done but how it is done. This applies to most babysitting situations but may not apply to someone who regularly works for several families and requires you to schedule around their open times. Assuming your babysitter would be considered your employee, when they hit the $2,700 threshold, it becomes your responsibility to adhere to the IRS’s tax withholding requirements.

What is the best way to make sure I don’t forget about any potential tax requirements?

Think about how often you may need your babysitter. Reaching $2,700 in wages for the year will happen quicker than you might think. For example, according to Care.com’s 2024 Cost of Care Survey, parents paid after-school sitters an average of $19.47 per hour ($292 per week), for working about three hours a day, or a total of 15 hours per week. At that rate, if you’re hiring a babysitter for 15 hours a week, you will end up over the IRS threshold in a little over two months. If this sounds like it applies to you, the safest solution is to withhold taxes from your babysitter every time they work for you. If, by the end of the year, your babysitter never actually reaches the threshold of $2,700 in gross wages (before taxes), you can simply refund them the amount of taxes you withheld.

Regardless of whether you end up needing to comply with “nanny taxes,” keeping track of the payments you make is a good idea that can save you money — because it can make it easier to apply your sitter expenses to child care tax breaks.

Do I need to do anything for my babysitter before they work for me?

“If you believe your babysitter will cross the IRS threshold of $2,700 per year, we would recommend having them complete a Form W-4 so you can be prepared to withhold the correct amount of income taxes from their pay,” says Tom Breedlove, Sr. Director of Care HomePay. “Additionally, have a conversation with your babysitter so they understand that tax withholding is a part of their employment arrangement.”