Babysitter Crossed the Threshold?

You just did the math. Your babysitter has earned more than $3,000 this year—maybe a lot more—and you haven't been withholding any taxes. Maybe you didn't know about the threshold. Maybe you thought babysitters didn't count. Either way, you're here now, and you want to know what to do.

Good. That's the hardest part—deciding to deal with it.

Your Action Plan (Start Here)

No need to wade through background information. This is what to do, step by step.

Step 1: Get an EIN — today, 5 minutes, free

An Employer Identification Number is your tax ID for household employment. You need it before anything else.

Go to IRS.gov, select "Individual/Sole Proprietor," then "Household employee." You'll have your EIN immediately. Full walkthrough in our EIN guide.

Step 2: Start withholding from the next paycheck

Going forward, withhold 7.65% from your babysitter's gross pay each time you pay them. That covers their share of Social Security (6.2%) and Medicare (1.45%).

You also owe 7.65% from your own pocket as the employer. Set that aside each pay period—don't wait until year-end.

Example: You pay your babysitter $100 for a Saturday night.

• Withhold $7.65 from their pay (they take home $92.35)
• Set aside $7.65 from your own money
• Total tax per $100: $15.30

Step 3: Figure out quarterly payments

The IRS expects you to pay household employment taxes as you go—not in one lump sum in April. You have two options:

Option A: Increase your own W-4 withholding. Ask your employer to withhold extra federal tax from your paycheck. This is the simplest approach if you're a W-2 employee yourself.

Option B: Make quarterly estimated payments. Use IRS Form 1040-ES. Payments are due April 15, June 15, September 15, and January 15. See our quarterly deadline guide for details.

Step 4: Issue a W-2 by January 31

At the end of the year, you'll prepare a W-2 showing what you paid your babysitter and what taxes were withheld. This is due to your babysitter and the Social Security Administration by January 31 of the following year.

Step 5: File Schedule H with your tax return

Schedule H is a one-page form that attaches to your personal 1040. It reports all the household employment taxes you owe—Social Security, Medicare, and federal unemployment (FUTA). Due April 15 with your regular return.

What About the Months You Already Paid?

This is the question everyone asks. You've been paying your babysitter since January without withholding anything. Now it's July. What happens to those first six months?

The employer share (your 7.65%): You owe it on everything you paid this year, including the months before you started withholding. You can't go back in time, but you'll report the full year's wages on Schedule H and pay the full employer tax then.

The employee share (their 7.65%): Technically, you were supposed to withhold this from each paycheck. You have a few options:

• Withhold a little extra going forward to catch up by year-end. If you explain the situation, most babysitters are fine with this.
• Absorb the cost yourself. You can pay the employee's share out of pocket. This is simpler but means you're covering both halves—about 15.3% total.
• Start fresh from today. Withhold the standard 7.65% going forward and accept that you'll cover the employee's share for the earlier months.

Any of these approaches is acceptable. The IRS cares most that you're making a good-faith effort to get it right.

"Can I Just Keep It Under the Table?"

You can—but you probably shouldn't. A few reasons, without the scare tactics.

The real risks:

• If your babysitter ever files for unemployment, the state will investigate and find no wage records from you
• If you're audited for any reason, missing Schedule H is a red flag
• If your babysitter needs income verification (mortgage, apartment, benefits), they can't document what you paid them

The financial risk is real but modest. Penalties run about 5% per month for failure to file (capped at 25%) plus 0.5% per month for failure to pay. On a typical babysitter's wages, you're looking at a few hundred dollars in penalties—but it compounds with interest and stress.

The more practical argument: going legit probably costs you less than you think, especially once the Child and Dependent Care Credit enters the picture.

The Silver Lining: The Tax Credit

This part surprises most families. If your babysitter watches your child under 13 while you (and your spouse, if married) work, you can claim the Child and Dependent Care Credit.

The credit:

• Up to $3,000 in qualifying expenses for one child
• Up to $6,000 for two or more children
• The credit is 20-35% of those expenses, depending on your income
• That's worth up to $1,050 for one child or $2,100 for two or more

But you can only claim it if you report the wages properly. Under-the-table payments don't qualify. You need a W-2 and Schedule H on file.

For many families, the tax credit alone covers most or all of the employer taxes. In some cases, you actually come out ahead by going legit.

Use our calculator to see the numbers for your specific situation.

NannyKeeper Can Back-Calculate

If you're partway through the year, NannyKeeper can handle it. You enter the start date—whenever your babysitter began working—along with what you've paid so far. We'll calculate the taxes owed on past wages and set up proper withholding going forward.

No complicated catch-up math on your end. Just enter the numbers and we'll tell you exactly what you owe.

Try NannyKeeper free →

FAQ

Do I owe taxes on the full year even though I just started withholding?

Yes. Once you cross $3,000 with any single worker, you owe employer taxes on their entire year's wages—not just the amount after you started withholding. The threshold is a trigger, not a floor.

What if I'm not sure how much I've paid my babysitter?

Check your bank statements, Venmo/Zelle history, and any cash records you have. Reasonable estimates are fine—the IRS doesn't expect penny-perfect records for household employment. The important thing is making a good-faith effort. Going forward, track every payment. A simple note on your phone works.

Can I fire my babysitter to stay under the threshold next year?

You can choose to use a different babysitter, reduce hours, or split care between multiple sitters so no one person crosses $3,000. But don't misreport wages to stay under—that's tax fraud. If you've already crossed the threshold this year, you need to handle it for this year regardless of what you do next year. See our breakdown of regular vs. occasional babysitter taxes for strategies.