My 15 YO is babysitting. Taxes will be filed, but...?

Question

One of my friends fired her adult sitter of 4 years and asked my daughter to sit for her. She is making $150 a week over the summer, with a few weeks off for vacations. My friend did not claim the deduction over the past 4 years because her sitter refused to claim it as income (illegal and under the table, I know). My friend is willing to keep it under the table with my 15 YO, but if she can claim some of it ~ that would be great for her.

My question is how much does my daughter have to make before having to pay taxes. She purchases craft items, takes them bowling and to the movies... Does that count towards expenditures. Do you have to have a business license to do that? She will make appx. $1200 this summer.

We will claim her on our taxes as a dependent. If I can help my friend out by reducing her taxable income, I will.

I just don't know what to do.

Answer 1

A child under age 18 who babysits at the employer's home is not subject to Social Security or Medicare taxes.  She is not required to file a tax return with babysitting income of $1,200, if this is her only income.  

However, in order for the employer to claim the babysitting expenses, she should issue a W-2 to your daughter, and to file Schedule H with her tax return.  

BTW your daughter should get reimbursed for paying for movies and craft items.  She shouldn't have to pay that herself.

Answer 2

If your daughter earns less than $3,500 she will not have to file a tax return.  The $3,500 is the standard deduction for the 2008 tax year.  The requirement for a business license would be regulated by your city or county, but I doubt it would be necessary if your daughter is a private sitter and not operating a daycare facility.  

If your daughter uses her own funds to purchase movie tickets, bowling, snacks, etc, then those expenses can be deducted against income.  Essentially your daughter is self employed and should file Schedule C-EZ and SE along with her 1040 form.  If her "business" generates profits in excess of $400, then payroll taxes should be paid, you do this on Schedule SE.

Answer 3

your daughter would have to pay 20+% in taxes so your friend can save $10 a week in taxes - if she is paying your daughter less than the adult, then she is already getting more of a benefit than she would from the child care tax credit - refuse to give her daughter's soc sec number - if she is getting exactly the same amount as the adult was - reduce it by $10 a week and there's the women's tax credit

Answer 4

1.  Let's be legal.

2.  Your daughter will not be making pocket change.  $1200 *is* income and should be reported.

3.  There are only 2 ways to do this legally.

If your daughter is babysitting at HER house, follow the rules in publication 926.

Note due to the amount of money and age, your daughter may not be subject to fica/mc.  FUTA applies, but that's nominal.  If your daughter has no investment income and this is her only income during the year, no income tax needs to e withheld.

Your friend pays by check and probably doesn't even have to do a W-2 since the total is less than $1600.

If your daughter babysits at YOUR house.  Follow the rules for self employment (15.3% of the income goes to payroll tax.)