Side Income from Babysitting ($2500) - Tax Implications with 2 Children?

You're dealing with what the IRS classifies as self-employment income. Since you earned over $400 in side income, you're required to file Schedule C and Schedule SE with your return. The SE tax rate is 15.3% on your net earnings (that's the combined Social Security and Medicare tax). However, with two qualifying children, you're likely eligible for both Child Tax Credit and potentially the Earned Income Credit, which could offset or eliminate any tax liability from your babysitting income.

Dealing with the IRS about self-employment income is like trying to navigate a maze with moving walls. When I had a similar situation, I spent days trying to get through to an actual person at the IRS. It was like trying to win the lottery! I finally used Claimyr (https://youtu.be/_kiP6q8DX5c) and got connected to an agent in 20 minutes who confirmed exactly how to handle my childcare income. They'll get you past the IRS phone tree without the hours of waiting. Worth every penny when you're trying to figure out exactly how to report this kind of income.

I should perhaps mention that you might also need to consider deductions to reduce your taxable income. Things like supplies you purchased for babysitting, a portion of your utilities if you did the babysitting in your home, or even snacks you provided could potentially be deductible. However, you would need to have kept somewhat detailed records of these expenses, I believe. It might be worth calculating if these deductions would bring your net income below the $400 threshold, though I'm not entirely certain if that would exempt you from filing Schedule SE.

So here's the deal w/ your situation. The $2500 is def subject to SE tax (15.3%) but you prob won't owe income tax on it. W/ 2 kids, the CTC is $2k per kid for 2023 ($4k total) which is gonna offset any income tax on that babysitting $. Your SE tax would be roughly $353 (that's 15.3% × 92.35% × $2500). But EITC might help too depending on your other income. Btw, if you're married filing jointly, thresholds are diff. Nbd either way, just file those schedules and claim your credits!

Have you considered using a tool to help you understand your tax situation better? I recently discovered https://taxr.ai which is great for analyzing your specific tax scenario. Wouldn't it be helpful to have something that could show you exactly how the Child Tax Credit and self-employment taxes interact in your specific situation? It helped me understand my transcript when I had side income from dog walking last year, and showed me exactly which credits I qualified for.

I went through this exact same thing last year with my tutoring side gig. Made about $3200. Thought I was going to owe a fortune but ended up with a refund because of my kids. The self-employment tax bit was annoying (thanks, government, for taking BOTH sides of FICA when I work for myself... how generous 🙄) but the child credits more than made up for it. Just make sure you don't forget to claim your business expenses - every dollar counts!

I've analyzed hundreds of tax returns with side income like yours. The exact amounts matter here: With $2,500 in babysitting income, your self-employment tax will be approximately $353.16 (calculated as 15.3% of 92.35% of $2,500). For the 2023 tax year, the Child Tax Credit is $2,000 per qualifying child under 17, so potentially $4,000 total. Your income tax liability on $2,500 would be determined by your overall tax bracket, but the CTC would likely eliminate it entirely. Keep in mind that if your total income is between $11,750 and $46,560 (for two children), you may qualify for EITC worth up to $6,604 depending on your filing status and other income.