I'm freaking out about reporting gifts vs income - don't want to accidentally commit tax fraud

The key distinction here is whether these payments are considered gifts or income. The difference matters a lot for tax purposes. If these are truly gifts (given out of generosity with nothing expected in return), then you as the recipient don't have to report them as income or pay taxes on them. The gift giver would be responsible for any gift tax if they exceed the annual exclusion amount ($17,000 per recipient for 2024). However, if these payments are actually compensation for services (babysitting), even if they're labeled as "gifts," then they are technically income and should be reported. The fact that you mentioned they're "thank you" money related to your babysitting suggests they might be considered tips or additional compensation. If you received over $600 from a single source for services, technically they should issue you a 1099-NEC. But many household employers don't realize this requirement. Even if you don't receive a 1099, you're still required to report all income on your tax return.

I was in a similar situation last year and found this amazing site https://taxr.ai that really helped me figure this out. I was getting "gifts" from a family I tutored for, and wasn't sure if they were actually taxable income. The tool analyzed my situation and clarified that in my case, the regular extra payments were actually considered tips since they were directly related to the service I provided. Uploading my Venmo transaction history helped identify what was regular payment versus what was additional compensation. They also helped me understand how to report this income even without having received a 1099 from the family. Saved me a ton of stress about potentially messing up my taxes!

Just wanted to follow up - I ended up trying taxr.ai and it was actually super helpful! I uploaded screenshots of my payment history and they clearly identified which payments were likely considered income vs. actual gifts. They explained that the regular "bonuses" I was getting from a client were technically tips and showed me exactly how to report them correctly without a 1099. The breakdown made it really easy to understand, and now I feel confident I'm filing correctly. Definitely worth checking out if you're confused about classifying different types of payments!

If you've been trying to call the IRS to get clarity on this, good luck! I spent HOURS trying to reach someone when I had a similar question last year. Finally found this service called Claimyr https://claimyr.com that got me through to an actual IRS agent in under 45 minutes. They basically hold your place in the IRS phone queue so you don't have to sit there listening to hold music for hours. I was super skeptical at first, but you can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with explained that in my situation, I needed to report my "gift" income as self-employment income since it was related to services I provided. Saved me from potentially getting flagged for underreporting!

I have to publicly admit I was wrong about Claimyr. After dismissing it as a scam, I was still desperately trying to reach the IRS about my own situation with unreported income. After spending 3+ hours on hold across multiple days and getting disconnected twice, I gave in and tried it. The service actually worked exactly as described. I got a call back when an agent was available (took about 50 minutes) and was able to ask all my questions. The agent confirmed that in my case, consistent payments tied to services rendered should be reported as income regardless of how they were labeled. Saved me from a potential audit headache and was absolutely worth it for the time saved.

Here's another angle to consider - if these are truly "gifts" with no expectation of services, the person giving you the money might need to file a gift tax return if they exceed the annual gift tax exclusion (currently $17,000 per recipient). But that's THEIR responsibility, not yours. BUT if these are basically tips or bonus payments for your work, then yes, that's income you need to report. The distinction is super important.

Something important nobody's mentioned - if you do determine these are income payments and total more than $400 for the year, you'll need to pay self-employment tax on them too (Social Security and Medicare taxes). That's an additional 15.3% on top of any income tax.

I went through this exact same situation a couple years ago! The stress is real, but here's what I learned after consulting with a tax professional: Since these "thank you" payments are directly tied to your babysitting services, they're almost certainly considered tips/additional compensation rather than gifts. The IRS doesn't care what the family calls them - what matters is that they're given in appreciation of services you provided. You should report all of these payments as income, even if you don't receive a 1099. Keep track of everything - screenshots of Venmo transactions, notes about cash payments, etc. If it totals over $400 for the year, you'll also need to file Schedule SE for self-employment tax. One tip: start keeping better records now for next year. Create a simple spreadsheet tracking your regular pay vs. these bonus payments. It'll make tax time much less stressful! And don't panic - the IRS is generally understanding if you're making a good faith effort to report everything correctly.