Paying your babysitter in cash does not stop you from claiming those payments on your taxes. Cash childcare costs qualify for the Child and Dependent Care Credit the same as a check or bank transfer would, provided you have your sitter’s taxpayer identification number and records to back up what you paid. The catch with cash is proof: there’s no bank statement doing the work for you, so your own paperwork has to carry the claim.
What the Credit Is Worth
The Child and Dependent Care Credit reduces your tax bill directly rather than lowering your taxable income.1Internal Revenue Service. Child and Dependent Care Credit Information It’s nonrefundable, so it can bring what you owe down to zero but won’t pay out beyond that.
Qualifying expenses are capped at $3,000 for one child and $6,000 for two or more.2Internal Revenue Service. Topic No. 602, Child and Dependent Care Credit Your credit is a percentage of that amount, between 20% and 35% depending on your adjusted gross income.3Internal Revenue Service. Instructions for Form 2441 (2025) The 35% rate applies if your AGI is $15,000 or less; the rate steps down in $2,000 AGI increments until it reaches 20% above $43,000 and stays there.
In dollars: the top credit for one child is $1,050, dropping to $600 at higher incomes. For two or more children, the range is $2,100 down to $1,200.
To qualify, you (and your spouse, if filing jointly) need earned income, and the care has to be necessary for you to work, look for work, or attend school full-time. The child being cared for generally has to be under 13.1Internal Revenue Service. Child and Dependent Care Credit Information
Which Babysitters Count
The IRS excludes payments to several people even if the care is real:
- Your own child under age 19, even if they babysit a younger sibling.
- Anyone you claim as a dependent.
- Your spouse.
- The parent of the child being cared for.
Other relatives, like an aunt, adult sibling, or a grandparent you don’t claim as a dependent, can be paid and count toward the credit.4Internal Revenue Service. Publication 503 (2025), Child and Dependent Care Expenses They just have to report the income on their own return.
You Still Need the Sitter’s Tax ID
Cash or not, you must list your babysitter’s name, address, and taxpayer identification number on Form 2441.5Internal Revenue Service. Instructions for Form 2441 (2025) For an individual, that’s a Social Security number or ITIN. Leave it blank and the IRS will disallow the credit.
The IRS gives you Form W-10 to collect this information. Your sitter fills in their name, address, and TIN, and you keep the form in your records rather than filing it.6Internal Revenue Service. Form W-10 Dependent Care Provider’s Identification and Certification
If your sitter refuses to give you a TIN, fill in what you have, write “See Attached Statement” where the number would go, and document your written attempts to get the information.5Internal Revenue Service. Instructions for Form 2441 (2025) The IRS calls this due diligence, and it can protect your credit if you’re audited.
Records to Keep When You Pay Cash
Cash strips away the automatic paper trail that a check or transfer creates. If the IRS questions your claim, the burden of proof falls entirely on what you kept.
Keep a running log with the date, amount, and hours of care for every payment. Have your sitter sign and date a receipt each time, or set up a simple written agreement at the start of the arrangement that spells out the hourly rate, expected schedule, and payment terms. A signed agreement up front plus individual receipts is the strongest documentation for an audit.
The IRS generally has three years from your filing date to audit a return.7Internal Revenue Service. Time IRS Can Assess Tax If you also owe household employment taxes, employment tax records need to be kept for at least four years.8Internal Revenue Service. Employment Tax Recordkeeping Four years is the safe minimum for everything.
When Cash Wages Trigger Employer Taxes
This is the part cash-payers most often miss. If your sitter comes to your home and you control what work is done and how, the IRS treats that person as your household employee.4Internal Revenue Service. Publication 503 (2025), Child and Dependent Care Expenses Paying under the table doesn’t change that classification. Misclassifying an employee as an independent contractor to skip these taxes can lead to back taxes, penalties, and interest.
The obligations kick in at specific cash wage thresholds:
- Social Security and Medicare (FICA): If you pay any single household employee $3,000 or more in cash wages during 2026, all of those wages are subject to FICA. The combined rate is 15.3% (7.65% from the employee, 7.65% from you). Stay a dollar under $3,000 and no FICA is owed on those wages.9Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide
- Federal unemployment (FUTA): If you pay $1,000 or more in total cash wages to household employees in any calendar quarter, you owe FUTA on the first $7,000 of each employee’s wages. The rate is 6%, but most employers get a credit of up to 5.4% for state unemployment contributions, dropping the effective rate to 0.6%. FUTA is paid entirely by you.10Internal Revenue Service. Topic No. 756, Employment Taxes for Household Employees
- Federal income tax withholding: Not required. You only withhold if your sitter asks and you agree, using a W-4 they provide.9Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide
Once household employment taxes apply, you need an employer identification number, which you can get instantly through the IRS online EIN application.10Internal Revenue Service. Topic No. 756, Employment Taxes for Household Employees
One offset: the employer-side FICA and FUTA you pay on qualifying childcare wages count as work-related expenses for the Child and Dependent Care Credit, subject to the same $3,000 or $6,000 cap.4Internal Revenue Service. Publication 503 (2025), Child and Dependent Care Expenses
Filing the Paperwork
You claim the credit on Form 2441, attached to your Form 1040. Part I is where the sitter’s name, address, TIN, and total paid go, along with a check box for whether the provider was your household employee. Part II calculates the credit against your qualifying expenses, any dependent care FSA benefits, and your AGI.5Internal Revenue Service. Instructions for Form 2441 (2025)
If you owe household employment taxes, you calculate them on Schedule H and attach it to the same Form 1040; the total flows to Schedule 2.11Internal Revenue Service. Instructions for Schedule H (2025) You also owe your sitter a completed W-2 by February 1, 2027, for the 2026 tax year, and you file Copy A with Form W-3 to the Social Security Administration by the same date, even if the sitter is your only household employee.12Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3
If You Also Use a Dependent Care FSA
You cannot double-dip. Any dependent care benefits you exclude from income through an employer FSA have to be subtracted from the $3,000 or $6,000 expense limit before the credit is figured.2Internal Revenue Service. Topic No. 602, Child and Dependent Care Credit Contribute $5,000 to an FSA with one child, and there is no room left for the credit. With two or more children, $1,000 of the expense cap remains.
For most families with FSA access, the FSA saves more tax than the credit because it reduces income at your marginal rate while the credit tops out at 35% and lands at 20% for most moderate earners. If your childcare bill runs above the FSA contribution limit, it’s worth running both calculations.