Child Care Credit

• According to the IRS' child care credit guidelines, you can deduct 20 to 35 percent of your child's babysitting costs if the service is necessary for you to work or to look for work. You must complete IRS Form 2441 to determine the exact amount you can claim as a credit on your taxes. The tax credit is not an itemized deduction on Schedule A or a work-related expense on Schedule C, but it is a tax credit that lowers the total amount of tax you owe for the year.
  
  

Requirements

• In order to qualify for the child care credit, you can only pay a babysitter to watch your children under the age of 13. The IRS does not allow you to hire your own children or any other dependents under the age of 19, but you can hire an extended family member to babysit. You must provide the babysitter's name, address, Social Security number and income received on Form 2441 when you file your federal tax return. Without the babysitter's Social Security number, you will be unable to file your tax return electronically.
  
  

Location

• The IRS states that if you regularly use a babysitter to care for your children in your own home, you may be required to pay employment tax for your babysitter. It is advisable to hire the babysitter to watch the children at his own home or business whenever possible.
  
  

Babysitter's Tax Responsibility

• If you do not hire a babysitter as an official employee, the babysitter's wages are considered self-employment earnings and are subject to income tax. As a self-employed person, the babysitter is responsible for keeping records showing the income she received. According to the IRS, self-employment net income in excess of $400 a year must be reported by the babysitter on her federal tax return. The babysitter also is responsible for paying self-employment tax and is required to complete Schedule SE of tax Form 1040.