Babysitting can be a great way to make extra money. Depending on how it's done, the Internal Revenue Service considers babysitting either as a business or employment. Sitters who work in someone else's home are generally considered domestic workers, and therefore employees. However, those who provide babysitting services out of their own homes usually qualify as businesses and meet the legal standard for self-employment.

At-Home Babysitting

The law considers as self-employed babysitters who work out of their own homes and who make their own rules. Essentially, they are running an informal childcare service. In such instances, babysitters should carefully account for their income and report revenues to the IRS. This revenue is subject to self-employment taxes.

Working For Families

When babysitters provide services in a family's home, they are generally considered employees and under the supervision or direction of the parents. Revenues are technically taxable as income; however they are not subject to withholding per special tax-code clauses for babysitters. Further, teens who babysit do not owe income tax on anything below £260 per year.

Exceptions

When a babysitter crosses the line for casual service provider to a long-time committed worker for one family, the situation becomes less clear. A commitment of four hours per day, five days a week with a job lasting for a year or more starts to look and feel like a standard part-time job because the relationship is more formal. In this case, state labour laws may require the family to act as an employer and provide payroll services. Alternatively, the babysitter and the family could establish a contract to make clear the sitter's status as an independent contractor. Families needing very consistent babysitting may want an agency that can handle the payroll taxes and legal liabilities that go with having a consistent employee.

Realities

Babysitting is a highly unregulated job. By and large, families pay local teens and neighbours to watch their children and pay cash for services. Although babysitters are obligated to report income to the IRS, many pocket the money and keep it under the table. Sitters who plan on supporting themselves with babysitting income may need to establish a proprietorship and account for revenues and taxes. Accountants can review individual situations and give advice reflecting local, state and federal laws.