Yes, since she is a babysitter, babysitting in your home, she would be a household employee. You could make the argument that she is babysitting in her home, however, since you are paying her to watch your kids, you are probably paying the majority of the household expenses, so it is still your home. You would also be in control of at minimum, the hours she is working.
Because you paid her less than $2,600, you would not need to withhold or pay social security taxes, but since you paid her more than $1,000, you would need to federal unemployment tax on her.
Because you did not withhold any taxes for her and do not need to pay any Medicare or SS taxes for her, you do not need to issue her a W-2.
So yes, TurboTax is taking you on the correct route for reporting the payments you made to her.
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