• Because most people do not view baby-sitting as a major source of income and the work is often done for close friends or family, the applicable tax rules can be a mystery. Baby-sitting income is often so small that baby sitters sometimes do not report it, but you should be aware of the rules when filing your tax return.
  
  

Federal Taxes and Self-Employment

• Baby sitters who bring their own toys for children to play with or decide when and where to work are usually considered self-employed.toys image by Alexander Petrari from Fotolia.com
  
  All income, including income from baby-sitting, is subject to federal taxes. You should keep a record of all income. This is important to have in the event the Internal Revenue Service audits you.
  
  Baby sitters with net earnings of $400 or more may be responsible for paying self-employment tax. This tax pays for the employer's share of contributions to Social Security and Medicare. If you will owe $1,000 or more in self-employment tax during the calendar year, you must make quarterly tax payments.
  
  The IRS classifies baby sitters under age 18 as employees and does not require them to pay self-employment tax. If you work for only one household and your employer tells you when and how to do your job, you are most likely considered an employee and do not need to pay the self-employment tax. However, baby sitters with multiple employers who decide when they want to work or provide their own supplies are usually considered self-employed.
  
  

Tax Deductions

• Certain tax preparation fees are deductible as a business expense.A young woman holding a pen, doing her taxes image by Christopher Meder from Fotolia.com
  
  The taxes you owe are calculated based on your income after expenses, or net income. The IRS allows you to subtract legitimate business expenses from your income. As with income, keep a record of all expenses. Examples of common baby sitter deductions include advertising, the cost of gas for transporting children and any other expenses incurred in the normal course of business.
  
  It is not legal to deduct commuting expenses. If you hired someone to help you with the babysitting part of your taxes, you can deduct this as a business expense. Payers of self-employment tax can also deduct half the amount paid.
  
  

Rules for Employers

• Depending on the circumstances surrounding your employment, your employer may have to pay taxes, too. The IRS classifies baby sitters who are not self-employed as household employees. Anyone who pays a household employee $1,700 or more in a calendar year must withhold and pay Social Security and Medicare taxes. Exceptions to this rule include payments to spouses and parents, your children under age 21 and anyone under age 18 at any time during the year.
  
  Those who hire a babysitter could also be liable for federal unemployment tax if they paid $1,000 or more in cash wages during any calendar quarter. This does not apply if your babysitter is a spouse, parent or your child under age 21.