Does the person you babysat for have to pay taxes on that money?

Answer 1

Not if your are a self employed taxpayer and the other taxpayer has your social security number in order to get the tax credit for the child care expenses.

If you are a self employed taxpayer then you are responsible for all of your own FICA self employment taxes of 15.3% plus any income taxes on your net profit from your business operation at your marginal tax rate.

You will need to report that income, and any related expenses, on Form 1040, Schedule C, Profit or Loss from Business, or you may qualify to use Form 1040, Schedule C-EZ, TO determine your Net Profit from Business. You will also need to use Form 1040, Schedule SE, Self-Employment Tax to compute and report your social security and Medicare tax.

For instructions and forms go to www.irs.gov and use the search box for publication 334 a very good place to start with examples

http://www.irs.gov/pub/irs-pdf/p334.pdf

http://www.irs.gov/publications/p463/index.html

Publication 463 Travel, Entertainment, Gift, and Car Expenses

Use the search box at www.irs.gov for Small Business and Self-Employed Tax Center

Filing Season Central is your one stop assistance center for filing your business returns. This includes Highlights of Tax Law Changes, Tax Tips, and more.

http://www.irs.gov/businesses/small/index.html

2 of the seven tax tips for starting a business enclosed below.

#4. Good records will help you ensure successful operation of your new business. You may choose any record keeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.

#7. Visit the Business section of IRS.gov for resources to assist entrepreneurs with starting and operating a new business. Go to www.irs.gov and use the search box for the below referenced material

*Starting A Business

*Operating A Business

*Closing A Business

*Publication 4591, Small Business Federal Tax Responsibilities (PDF 470.1K)

For more detailed information go to www.irs.gov and use the search box and type Publication 583, Starting a Business and Keeping Records.

http://www.irs.gov/publications/p583/index.html

The following are some of the types of records you should keep:

*.Gross receipts are the income you receive from your business. You should keep supporting documents that show the amounts and sources of your gross receipts. Documents for gross receipts include the following:

*. Cash register tapes

*. Bank deposit slips

*. Receipt books

*. Invoices

*. Credit card charge slips

*. Forms 1099-MISC

and more information is available below

PLEASE REVIEW THE PUBLICATION LINKED HERE:

http://www.irs.gov/taxtopics/tc756.html

Whether a person is an employee or an independent contractor is complex. However each require reporting.

In reality, the casual hiring of a local kid to babysit, is NOT a target, or even the intent, of the tax laws. If that kid. like some today, is actually entreprenaurially rnning a business, or if you hire them regularly, that is a different story.