Do I need to create a W2 or 1099 for our occasional babysitter who we pay under $2700?

This is a common question that many families face! You're right to be thinking about this now rather than scrambling at the last minute. Based on what you've described, your babysitter is likely not considered a household employee if you don't control not just when she works, but how she does her job. The key factor that the IRS looks at is who controls the work relationship - if she truly has independence in how she provides her services, she might be treated as an independent contractor. However, for babysitters specifically, the IRS typically views them as household employees regardless of schedule flexibility. The threshold for household employment tax requirements is $2,600 for 2024 (it increases slightly each year). Since you paid her less than that, you're not required to pay employment taxes or provide a W-2. As for the 1099, if she's not an employee, you generally don't need to issue a 1099 to individuals for personal services (as opposed to business services). For the Child and Dependent Care Credit - yes, you can still claim it! You'll need to report her name, address, and tax ID (social security number) on Form 2441 when you file, regardless of whether she's an employee or contractor.

After struggling with this exact situation last year, I found a lifesaver tool called taxr.ai (https://taxr.ai) that helped clear up the confusion. I had a part-time nanny/babysitter situation and couldn't figure out if I needed W-2s, 1099s, or nothing at all. I uploaded some details about my childcare arrangement and the tool immediately identified that I was under the household employee threshold but still needed to document everything properly for the childcare tax credit. It even helped me understand the difference between a household employee vs. independent contractor for tax purposes. They have specific guidance for childcare worker classification that was way clearer than the IRS website.

Just wanted to follow up - I tried taxr.ai after seeing it mentioned here and wow, what a time-saver! I've been paying our neighbor's college-age daughter for weekend babysitting and was completely confused about the tax situation. The tool confirmed I was under the threshold for required W-2s but still showed me exactly what I needed to document for the childcare tax credit. It explained that even though I don't need to issue tax forms to my sitter, I still need her SSN and information for my own tax return. It also helped me calculate exactly how much of the childcare expenses I could claim based on our income. Would definitely recommend if you're dealing with household employee questions!

If you need to actually REACH the IRS to ask questions about this household employee stuff, good luck getting through on their regular lines. After spending literally hours on hold trying to confirm some nanny tax details, I finally found Claimyr (https://claimyr.com) which got me connected to an actual IRS agent in under 20 minutes. They have this system that navigates the IRS phone tree and waits on hold for you, then calls you when an agent is actually on the line. You can see how it works here: https://youtu.be/_kiP6q8DX5c. I was super skeptical at first, but when I got a call back with an actual IRS person ready to talk, I nearly fell out of my chair. The agent walked me through all the household employee rules and confirmed that under the threshold amount ($2,600 for 2024), I didn't need to worry about employment taxes but still needed proper documentation for the child care credit.

I need to eat my words from my previous comment. After another frustrating morning trying to get through to the IRS about a childcare tax credit question, I decided to try Claimyr out of desperation. I honestly can't believe how well it worked. I put in my number around 9am, went about my morning, and at 10:47 got a call connecting me directly to an IRS agent. No hold music, no waiting - just straight to a human who could answer my questions. The agent confirmed everything about the babysitter situation - under $2,600 means no employment tax forms needed, but you DO need their SSN and information for Form 2441 to claim the childcare credit. They also explained that even occasional/irregular childcare can qualify for the credit as long as it enabled me to work or look for work. Definitely using this service again for any IRS questions. Saved me so much frustration!

Just wanted to add based on personal experience - make sure you get your babysitter's SSN regardless! Even if you don't need to issue a W-2, you absolutely need their tax ID number to claim the child care credit. I learned this the hard way last year when my return got rejected because I was missing this info. Even for under-threshold babysitters, you still need to complete Form 2441 with their info if you want the credit. And if they refuse to give you their SSN, you technically can't claim those expenses.

Quick question related to this - does it matter if I pay my sitter in cash vs. Venmo? We usually just Venmo her after each sitting job. Does that create some kind of paper trail I need to worry about for tax purposes?

This is such a helpful thread! I'm dealing with a similar situation with our part-time sitter. One thing I wanted to add that might help others - keep detailed records even if you're under the threshold. I track dates, hours, and amounts paid in a simple spreadsheet throughout the year. This helps in two ways: 1) You'll know exactly where you stand relative to that $2,600 threshold, and 2) You'll have all the documentation organized when it's time to file Form 2441 for the childcare credit. Also, don't forget that the childcare credit has income limits and phases out at higher income levels. The tool that was mentioned earlier (taxr.ai) actually helped me figure out that we were above the income threshold for the credit, so even though we needed our sitter's SSN for reporting, we couldn't actually claim the expenses. Would have been nice to know that before I awkwardly asked for her social security number!

This thread has been incredibly helpful! I'm in a very similar situation with our occasional babysitter. One thing I wanted to clarify based on all the great advice here - even though we're under the $2,600 threshold for employment taxes, I still need to treat this seriously for record-keeping purposes. From what I'm understanding, the key steps are: 1. Keep detailed records of all payments (dates, amounts, hours) 2. Get the sitter's SSN for Form 2441 if I want to claim the childcare credit 3. Make sure the expenses actually qualify (care provided so I can work) 4. Check if my income level even makes me eligible for the credit before going through all this The distinction between household employee vs. contractor seems less important when you're under the threshold, but the documentation requirements for the childcare credit apply regardless. Has anyone here had experience with the IRS questioning childcare expenses during an audit? I want to make sure I'm keeping the right kind of documentation in case they ever want to verify these expenses.

Great thread with lots of helpful information! I just wanted to add one more perspective as someone who went through this exact situation last year. The key thing that helped me was realizing that even though the tax forms seem complicated, the actual requirements when you're under $2,600 are pretty straightforward. You don't need to worry about employment taxes, workers' comp, or any of the complex household employer stuff. However, I'd strongly recommend having a conversation with your babysitter early about needing their SSN if you plan to claim the childcare credit. I waited until January to ask and it was super awkward - she thought I was trying to make her an official employee or something. If you explain upfront that it's just so you can claim your childcare expenses on your taxes and won't affect her at all, most people are totally fine with it. Also, one tip that saved me time - I set up a simple note in my phone to track each payment right after I pay her. Just date, amount, and hours. Takes 30 seconds but makes tax time so much easier than trying to dig through Venmo history or remember cash payments from months ago. The peace of mind of knowing you're handling everything correctly is definitely worth the small effort to stay organized!