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My wife has started watching a newborn of a relative and is being paid $300 per month. I'd like to understand how to properly report this income to the IRS, both to be honest and so that our relatives can claim the child tax credit. Monday through Friday she drives to their house. Some days she stays at their house, and other days she brings the child to our house. She gets paid $300 in cash once a month.

I'm having trouble understanding exactly how to report this income. Since some days she stays at their house to watch the child, and gets paid over $1,700 a year, she would seem to be a household employee according to Publication 926. In that case our relatives would need to pay and withhold Social Security and Medicare taxes totaling 15.3%. Since she would be paid $300 per month, it is less than the $1000 per quarter which triggers payment of Federal unemployment tax. Of course in this scenario all $300 would be subject to income tax, and with our marginal tax rate of 25%, this would result in the government taking 25+15.3=40.3% or $120.90 every month.

However, I don't think she's purely a household employee. Only some days, perhaps half the time, does she stay at their house, other days she comes home. In this case she would be self-employed. Assuming the only expense we take on Schedule C is mileage, it's 360 miles a month or $198. That leaves a profit of $102, and a total of $38.11 in self employment and income tax every month, an effective 12.7%.

Clearly it is much simpler and much more beneficial to be considered self employed, a difference between 12.7% and 40.3% total tax rate.

I'd greatly appreciate any input anyone can give on this matter. Thank you!

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how about you just don't report it? i've never in my life heard of anyone reporting baby sitting income, unless they are... (more)

molecule (May. 05, 2009 @ 12:10p) |

Ok DC so you are worried about future political appointments. It is better if wife is not willing to ask for at least mi... (more)

lindylady (May. 05, 2009 @ 12:26p) |

If you are doing it so cheaply, why aren't you having it done at your house? Also, if she is already watching one kid fo... (more)

Rajjeq (May. 05, 2009 @ 1:13p) |

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Well, you're slightly incorrect on the treatment of a household employee as I understand it. Yes, the employer should withhold the SS and Medi taxes, but NOT 15.3%. THEY are required to pay half of that. And if they're giving you $300 a month cash, then that is the NET pay. Actual income would be grossed up to $324.85 per month ($300 / 0.9265) and the $24.85 represents your half of the SS/medi taxes. They would actually submit $49.70 a month.

The problem with being self-employed might be state regulations. Could be considered being a day-care provider and might need to be licensed (technically).

If she is an employee, wouldn't that make the mileage into commuting, which is nondeductible?

Also, unless it's a minimal amount of hours, at $300 you are probably doing them a big favor, and I wouldn't worry about their dependent care credit.

Rajjeq said: If she is an employee, wouldn't that make the mileage into commuting, which is nondeductible?
I was only considering deducting mileage in the self-employed case, in the household employer case you're right, it's just commuting.

Also, unless it's a minimal amount of hours, at $300 you are probably doing them a big favor, and I wouldn't worry about their dependent care credit.
That's a side benefit, I'm mostly concerned about being honest about things.

shadow520 said: Well, you're slightly incorrect on the treatment of a household employee as I understand it. Yes, the employer should withhold the SS and Medi taxes, but NOT 15.3%. THEY are required to pay half of that. And if they're giving you $300 a month cash, then that is the NET pay. Actual income would be grossed up to $324.85 per month ($300 / 0.9265) and the $24.85 represents your half of the SS/medi taxes. They would actually submit $49.70 a month.

The problem with being self-employed might be state regulations. Could be considered being a day-care provider and might need to be licensed (technically).


I understand what you mean. What I was more concerned about is the total amount of money that the government sucks out of this transaction, in addition to the issue of complexity.

In my state you need to watch at least six children to be required to get a license.

Cash = they have no record of transaction and they can not claim credit.*



(Very small print) *Well, that's my take of it.

This is family. These are cash transactions... F' em. I see no reason why you should go out of your way to pay income tax on it.

0AfterRebates said: Cash = they have no record of transaction and they can not claim credit.*



(Very small print) *Well, that's my take of it.
That is why they would report her as a household employee or issue a 1099.

OP, I would not be too concerned with how they are reporting the income. At the end of the year, your wife can supple them with a statement showing the information that they need in order to deduct the payments on their tax return if she wants to. How they handle the payments (household employee or whatever) is really their responsibility. As long as you report the income on your tax return next year, you are fine.

theman2 said: 0AfterRebates said: Cash = they have no record of transaction and they can not claim credit.*



(Very small print) *Well, that's my take of it.
That is why they would report her as a household employee or issue a 1099.

OP, I would not be too concerned with how they are reporting the income. At the end of the year, your wife can supple them with a statement showing the information that they need in order to deduct the payments on their tax return if she wants to. How they handle the payments (household employee or whatever) is really their responsibility. As long as you report the income on your tax return next year, you are fine.


Not true. How the payer handles reporting the payments determines how the OP has to report them on OPs return. OP cannot just decide to report a W2 as a 1099 and vice versa without solid foundation to do so, and IMO, he doesn't have it.

How much is the child tax credit worth? Does it come out as a wash if they don't get the tax credit and you don't pay the taxes on CASH you've received from family (which is also, incidentally, below the gift limit that requires reporting, I think).

Since you're family, I would leave the IRS out of this, if I were you.

At the rate you are giving you should not worry about the flex deduction they are looking for. credit? as far as I know and claim that is given to any family that has a child. I suggest they gift you a nice lump sum (up to 10k a year) and you do them a favor of babysitting.

I don't see why the IRS has to be involved in your wife helping out your relatives with babysitting and them helping you out with some cash gifts....

It is probably best to talk to the parents of the child and see how they want to handle it. If they want to be able to claim the amount they pay for child care - and they pay her over $1,700 a year - then they would have to pay their share of the SS (and also do withholding for her share from her pay).

I don't think the IRS would buy into the idea that part of the employment is household employment and part of it is self-employment. I would think they would want it set up one way or the other. And most generally, if your wife provides care in THEIR home - the IRS would view her as an employee.

Another option you might want to consider is to see if you can set up where they pay your wife reimbursement for mileage (which I don't think would be taxable for her; nor deductible for them)and pay her the rest in wages. The $102 a month in wages could be turned in as household employee not subject to SS tax. Your wife would pay income tax on that amount, and the family could deduct it as a child care expense. But neither would have to pay SS. (Nor would it count as SS earnings or work credits for your wife's record.

But you would also want to set it up where it is clear that they are reimbursing your wife for her mileage, but NOT actually paying her to drive the child - which can get into the whole realm of chauffeur licensing. I know in this area, babysitters suddenly became very careful about picking kids up from school for awhile. I think now they are more inclined to do so, as long as it is clear that they are being paid to babysit (and they happen to pick the child up from school) but they are not actually being paid to pick the child up from school.

there is some internet sites that will process this for you --- do a little more searching and I am sure you find a link

Well the problem with legal reporting in this case is that she is getting paid under the minimum wage most likely.
So she needs to get paid minimum wage first then report it and pay SS ect

lindylady said: Well the problem with legal reporting in this case is that she is getting paid under the minimum wage most likely.
So she needs to get paid minimum wage first then report it and pay SS ect


Babysitting on a casual basis (which I think this qualifies as) is exempt from minimum wage requirements.

I wouldn't worry about this. But if you have to a 1099 is the only way to go. But they aren't going to awnt to do this, they would need to be have a business license, etc....to give you a 1099.

BrlDsguise said: lindylady said: Well the problem with legal reporting in this case is that she is getting paid under the minimum wage most likely.
So she needs to get paid minimum wage first then report it and pay SS ect


Babysitting on a casual basis (which I think this qualifies as) is exempt from minimum wage requirements.

If she is babysitting an average of more then 8 hours a week (which it sounds liek she is)then it does not count as casual and she needs to be getting the minimum wage.

lindylady said: BrlDsguise said: lindylady said: Well the problem with legal reporting in this case is that she is getting paid under the minimum wage most likely.
So she needs to get paid minimum wage first then report it and pay SS ect


Babysitting on a casual basis (which I think this qualifies as) is exempt from minimum wage requirements.

If she is babysitting an average of more then 8 hours a week (which it sounds liek she is)then it does not count as casual and she needs to be getting the minimum wage.

That may be true, but the IRS is not in the business of enforcing labor law.
The tax rules are the same regardless of whether they are paying her the minimum wage or not.

tessz said: I wouldn't worry about this. But if you have to a 1099 is the only way to go. But they aren't going to awnt to do this, they would need to be have a business license, etc....to give you a 1099.
A 1099 is issued only for payments in connection with your business or trade. Unless you are in the child care business, you would not be issuing a 1099 to a babysitter. And even if you were in the child care business, you would not be issuing a 1099 to your personal babysitter.

I had a home daycare for 9 years. All the families put my soc. sec. number on their returns to get the child care credit, I reported all the income as self employed.

Now I babysit for one family after school and during vacations. Last year they paid me around $7500. They reported my name and the amount on their taxes to get the child care credit and I again reported it as self employment income.

As a side note, I live in Massachusetts and had the required license when I watched a bunch of kids, but when I dropped down to one family I still needed a letter from the state to watch those kids at my house. My lovely neighbors reported me and I received a state visit which is when I discovered this.

I can see there are LOTS of opinions on this one. First of all, I want to do this legitimately, even if no one really cares about it. Second of all, I think the net cost of this has the potential to be negative, considering both our costs and theirs, and the tax credit.

From reading the relevant IRS publications, I've come to the conclusion that my wife is not their employer based on the common law definition of an employer-employee relationship. They'll give us a 1099 and we'll report it as self employment.

Thanks for all the input, there's definitely not a clear cut answer, unless you ask the IRS in which case I'm sure they'd say whatever gives them the most money.

MaelIosa said: ..unless you ask the IRS in which case I'm sure they'd say whatever gives them the most money.That certainly hasn't been the case when I've called them.

She should charge more.

I'd be happy to pay her $600 for the same thing. Going rate around here would be at least $1200.

fallbird said: A 1099 is issued only for payments in connection with your business or trade. Unless you are in the child care business, you would not be issuing a 1099 to a babysitter. Almost correct. The IRS says a 1099-MISC is to be used only in connection with your "trade or business" which lost its everyday meaning and became a defined, legal term-of-art. "The term “trade or business” includes the performance of the functions of a public office." http://www4.law.cornell.edu/uscode/26/7701.html (scroll down to 26). And "includes" is here used in a limiting sense since nothing else is defined or included. If you really wish to follow the letter-of-the-law on this, you may want to learn the true, statutory definition of income.

Borkus said: fallbird said: A 1099 is issued only for payments in connection with your business or trade. Unless you are in the child care business, you would not be issuing a 1099 to a babysitter. Almost correct. The IRS says a 1099-MISC is to be used only in connection with your "trade or business" which lost its everyday meaning and became a defined, legal term-of-art. "The term “trade or business” includes the performance of the functions of a public office." http://www4.law.cornell.edu/uscode/26/7701.html (scroll down to 26). And "includes" is here used in a limiting sense since nothing else is defined or included. If you really wish to follow the letter-of-the-law on this, you may want to learn the true, statutory definition of income.We get it. You think federal income tax is not legal.

Is there any chance you'd be willing to show forum participants a little consideration and post this sort of stuff in the thread you started on the topic instead of inserting it in any thread having to do with income tax?




                            I didn't think so.













marketingmike said: She should charge more.

I'd be happy to pay her $600 for the same thing. Going rate around here would be at least $1200.


How would you know this when you don't know how many hours she babysits?

OK, I just read something in my bi-weekly newsletter I get that may be relevant to this topic.

Kiplingers Tax Letter said: Providing day care for a grandchild won't trigger self-employment tax, the Tax Court says. Here the grandparents cared for their granddaughter under a state-sponsored child care program. The couple received a 1099-MISC form from the state for the money they got from the state, but did not have to pay self-employment tax since they weren't caring for other kids. They stepped in because their daughter could not afford to pay for day care herself (Steele, TC Summ. Op. 2009-45).

I would recomment looking up that Tax Court opinion and see if it applies to the OPs situation. It can't be relied upon as precendent, but it might contain helpful info. Here is a link to the opinion: TC Op 2009-45

Rajjeq said: marketingmike said: She should charge more.

I'd be happy to pay her $600 for the same thing. Going rate around here would be at least $1200.


How would you know this when you don't know how many hours she babysits?


She watches the child about 40 hours a week. We certainly don't think $300 is a going rate, I think $1200 for daycare that comes to your house in the metro DC area would itself be a very good rate. The point isn't to make a big profit off of this, it's family, a sibling to be more precise; $300 is to help cover some of the transporation costs and to provide some spending money.

how about you just don't report it? i've never in my life heard of anyone reporting baby sitting income, unless they are involved in a creative tax diversion scheme (via FSA and 'payments' to wife/grandmother/etc for childcare and 'related expenses', one of the most clever tax scams for parents and business owners i've seen in years), which i've seen plenty of.

Ok DC so you are worried about future political appointments. It is better if wife is not willing to ask for at least minimum wage if you just have her do the babysitting as a gift and then they happen to be generous back and give you guys things like gas giftcards or nice checks monthly in nice thank you notes

If you are doing it so cheaply, why aren't you having it done at your house? Also, if she is already watching one kid for so many hours, maybe she should seek to watch a stranger's kid at the same time so as to make more than $1.75 an hour for her time.



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