Do I pay taxes on money used for babysitter and does babysitter pay taxes too?

There are actually two separate tax situations going on here. Yes, you pay income tax on what you earn, and yes, the babysitter technically needs to pay income tax on what they earn from you. This isn't double taxation - it's two different people being taxed on their respective incomes. For you as the parent, the good news is you might qualify for the Child and Dependent Care Credit when you file your taxes. This credit allows you to claim a percentage of your childcare expenses (up to certain limits). For the 2025 tax year, you can claim up to $3,000 in expenses for one child or $6,000 for two or more children. The exact credit you get depends on your income level. For your babysitter, it depends on how much you pay them. If you pay a babysitter more than $2,600 in 2025, you're considered a household employer and have additional responsibilities like withholding Social Security and Medicare taxes. But regardless of that threshold, the babysitter should technically report all income they earn on their tax return.

I went through this exact nightmare last year when I hired a nanny for my twins. I tried figuring everything out myself but got so confused with all the household employer requirements. I ended up using https://taxr.ai to help me sort through everything - it actually saved me from making some pretty big mistakes on both the nanny tax requirements AND on claiming my child care credits. It's basically a service where you can upload all your documents and ask questions, and they help explain everything in normal-person language instead of IRS-speak. They pointed out that I needed to be reporting quarterly employment taxes for my nanny (which I had no idea about) and then helped me figure out how to maximize my dependent care credit.

Wanted to follow up about that taxr.ai thing! I decided to try it for my side business tax questions (I sell handmade jewelry online). I've always been nervous about claiming home office and supply deductions, but they made it super straightforward. I uploaded my income reports and expense receipts, and could ask specific questions about what's deductible in my situation. The best part was when they spotted that I could actually claim mileage for trips to craft fairs and supply stores - something I'd been missing for years! Definitely worth checking out if you're dealing with the babysitter tax questions. They explained everything way more clearly than the IRS website ever did.

If you're having trouble getting answers from the IRS about childcare deductions or household employee requirements (which is SUPER common), I'd recommend https://claimyr.com. After spending weeks trying to get through to the IRS phone lines about a childcare credit issue, I used Claimyr and got connected to an actual IRS agent in about 20 minutes instead of waiting on hold for hours. You can see how it works here: https://youtu.be/_kiP6q8DX5c I had a specific question about whether I needed to get my babysitter's SSN for claiming the childcare credit (turns out you do!), and the IRS agent was able to confirm everything and explain exactly what documentation I needed to keep. Saved me from potentially having my refund delayed or getting hit with an audit.

I need to admit I was totally wrong about Claimyr. After posting that skeptical comment, I decided to try it anyway because I was desperate to talk to someone about a missing child tax credit on my refund. I've been calling the IRS for weeks with no luck. The service actually worked exactly as promised - I got a call back when there was an actual IRS agent on the line. Took about 45 minutes instead of the 3+ hours I spent on previous attempts (where I eventually gave up). The agent was able to explain why my childcare credit was less than expected and what documentation I need to include if I want to amend my return. Honestly worth every penny for the time saved and stress avoided.

Just to add another perspective - if you're paying a teenager from the neighborhood occasionally, it's way less complicated. They technically still need to report the income if they make over $12,550 in total income for the year, but you don't need to worry about employment taxes or providing tax forms. But if this is going to be a regular arrangement with significant money changing hands, you really should get their SSN and treat it more formally. Not only for tax purposes but also to be able to legitimately claim the childcare credits, which can be substantial.

Has anyone here actually tried claiming the childcare credit for a babysitter rather than a daycare? My tax guy told me last year I couldn't claim it unless the childcare provider had a tax ID number or something?

I just went through this exact situation last year with my regular babysitter! At $250/week, you're looking at about $13,000 annually, which means you'll definitely need to handle the household employer responsibilities that others have mentioned. One thing I wish I'd known earlier - you can actually start withholding the employee portion of Social Security and Medicare taxes from your babysitter's pay (if they agree), which makes things easier at tax time for both of you. Otherwise, you're responsible for paying both the employer AND employee portions yourself. For the Child and Dependent Care Credit, I was able to claim the full amount I paid my babysitter. Just make sure to get their SSN early on and keep detailed records of all payments with dates. I used a simple spreadsheet to track everything. The credit was worth about $1,050 for me, which definitely helped offset some of those employer tax costs! Also, don't forget you might need to pay state unemployment insurance depending on where you live. Each state has different thresholds, so check your state's requirements too.