Tax and Babysitting

A REMINDER FIRST: This article doesn't mean that we become paranoid and stop doing an occasional act of kindness by babysitting for a friend, relative or neighbor. Such graces are what make our society human. Only that if we make money out of such activity regularly or periodically, then like any other income earner we are just paying the taxes due.

Also, the words REGULAR, PERIODIC and SPORADIC have special and specific meanings when it comes to legalese. Now, to the subject of taxes and babysitting.

Babysitting is usually considered as the first stepping stone to the world of wages by most young people. Something like kids running a lemonade stand as the first step of learning the importance of working for a living.

But, taking care of a child is more mature an exercise than running a lemonade stand in childhood.

For tax purposes, a baby sitter is considered as a childcare provider.

And all childcare providers have to include the compensation or remuneration they get from that service in their income.

That is the case whether childcare is provided in -

the provider's home,

OR

the child's home

OR

a place of business.

That is also the case whether the child or children belong to relatives or live in the neighborhood.

And that applies whether such service is provided regularly or periodically.

Types of Childcare providers.

1. IF YOU ARE AN EMPLOYEE OF A CHILDCARE AGENCY

Then probably you will be receiving W-2 forms from your employer and filing the regular tax return like all other wage earners.

2. IF YOU ARE RUNNING A BUSINESS PROVIDING CHILDCARE

Then rules of business taxation apply to you and you are filing business income tax returns.

3. IF YOU ARE SELF-EMPLOYED

Then you must include payments received for your services on -

Schedule C, Profit or Loss From Business

or

Schedule C-EZ , Net Profit From Business.

and attach it to the tax return, Form 1040.

Which Schedule, C or C-EZ?

Schedule C is used to report income or loss from a business you operate or a profession you practice as a sole proprietor.

Sole proprietors running just one business and using cash method of accounting
AND who have expenses of $5,000 or less
may be able to file Schedule C-EZ instead of Schedule C.

Definitions to remember

1. SELF-EMPLOYMENT

Your work is considered as self-employment if it is not under the willful control of another person who employs you as to

- what you do

AND

- how you do it.

2. BUSINESS

Your activity is considered as a business if

- your primary purpose for engaging in the activity is income or profit

AND

- you indulge in that activity with some regularity. That regularity can be continuous or periodic.

PLEASE NOTE:

This article just deals with some of the basics of taxes for childcare providers. Please refer to the resources provided by the Internal Revenue Service (IRS) for the latest and more definitive information on the subject.