Babysitter income for teen

What is tax free limit for babysitter income of teen?

$4,550 is the cut-off point for earned income -- it doesn't matter if it's from babysitting or a full-time job. But don't think your kid's off the hook just yet. If unearned income -- dividends, trust distributions, capital gains etc. -- exceeds $750 he/she may still have to file a return. For more information see IRS Pub. 929 "Tax Rules for Children and Dependents (http://www.irs.gov/pub/irs-pdf/p929.pdf)."

Is the babysitter income subject to SE tax of 15.3% for all over $400? I know newspaper delivery is not, but can't find the answer to other summer earned income. Probably the payors of the babysitting income are not going to withhold the employer's share of the FICA taxes. Therefore, if the earnings are used to make a ROTH IRA contribution, will the SE tax be due on the excess of $400?

Not if the baby sitter is under age 18. Baby sitters are normally considered household employees, so the employer would be required to withhold FICA tax (and pay half). Thanks to a special rule, however, this general rule does not apply to baby sitters under age 18. So, although the income is income to an employee, it's not subject to FICA. And, since it's income to an employee, it's not self-employment income subject to the self-employment tax.

One other point: If this were not the case -- that is, if self-employent tax were due -- it would be due whether or not the income was used as the basis for a Roth contribution!

--kevin mccormally
editorial director
Kiplinger's Personal Finance magazine