Families who employ baby-sitters may never consider the tax implications of doing so. But if you make your living babysitting, it doesn't matter how you're paid. You'll still have to report your income to the Internal Revenue Service and pay taxes on it. Even if you don't make enough to be required to file taxes, you still can file your return to get a refund or document your income.
If you are self-employed and make more than $400 a year, you're legally obligated to file a tax return. Employees younger than 65 have to file returns if their income is greater than $9,750, even if the money was paid to them in cash.
Optional Income Taxes
If your income doesn't reach the threshold that mandates a return, you still can file income taxes. Doing so can help you document your income if you plan to apply for a loan or purchase a home. It also ensures you're paying into Social Security if you're self-employed. If you have several deductions or credits, filing a return may even earn you a tax refund.
Reporting the Right Figure
If you're paid in cash, it can be tempting to under-report your income. But the IRS can audit you, investigate your bank accounts and review your purchases to determine how much money you really make. Moreover, if you under-report, you might not be eligible for loans and credit, because banks base their offers on your income tax filings. If you're not sure how much you made, review your bank records or purchases for the previous year, or consider beginning an earnings log.
Employee Payroll Taxes
If you work for one family according to a regular schedule, you're likely an employee, which obligates your employers to pay payroll taxes. If they don't withhold these taxes from your check, you'll be stuck paying self-employment taxes, resulting in a higher tax burden. Consider talking to your employer about withholding taxes by using a nanny tax service that makes the process relatively easy.
- Image Source/Photodisc/Getty Images