First a caveat: I work with family child care providers and this article concerns parents hiring babysitters in their homes. Such folks are "household employers." Day care providers are NOT household employers. Though they work out of their homes, they are business owners and are categorized as "commercial employers." Family child care providers can find employment tax guidance in my Payroll Tax Guide article.

A parent writes:

> I am getting different opinions on my situation from tax companies. Is there anyway you can help. I have a college girl come in my house and she watches my son for about 3 hours a day. However she is not in school right now and doesn't have any other job. To be honest I just wanted to do it under the table, but she is filing what she made, which was $3,800. Should I do a 1099, or do I make a W-2 for her? I am very confused. H&R block told me I had to get a federal id number and give her a w-2 and pay her Medicare and social security taxes. I am really overwhelmed right now with all this and just want to get it over with.

H & R Block is correct. You are a household employer. At least that's somewhat easier than being a regular employer. You can file a form with your regular income tax return to pay the federal payroll taxes.

...

California (assuming you are a CA resident) is a bit more trouble, but they also have special rules for household employers and a California Household Employer's Guide.

This is can be a pretty overwhelming thing to deal with for the first time, so look for a tax professional who can help you or get H&R Block to do the work. You don't want to miss filing the W-2 by February 28.

And another parent writes:

> My mother-in-law comes to babysit my two children in my house. We pay her cash. Is there any special loophole here or is just considered a household employee - which requires me to pay social security and Medicare taxes, and fill out a W2? She really can't consider herself an independent contractor because she comes to the house when my wife and I go to work on the same days. Not sure what to do.

Same answer as above, except that your mother-in-law qualifies as a "family employee" and so you can pay somewhat less in employer taxes. In your situation, you can skip paying federal unemployment taxes.

Most of the time, a parent working for a child in a household setting is exempt from all payroll taxes, but not when the parent is caring for your child under the age of 18 or your child with a physical or mental condition, as described in the IRS Household Employer Guide. In such situations, you must still pay the social security and Medicare taxes.

No matter what, I assume that you must give your parent employee a Form W-2, though I didn't read far enough to confirm that. But the income must be taxable, so I bet the W-2 is required.

Check the California Household Employer's Guide for special state rules for parent employees.

Note that parents working in their child's business ARE subject to all the normal payroll taxes and this includes cases where family child care providers hire a parent.

Posted on 2010-02-18 00:54:06