My child who earned more than $1,000 babysitting and contributed $1,000 to a Roth IRA. How do I report the earnings without incurring the Self-employment tax?

[mark-falloon]

How do I classify the income as earned so that we get credit for the Roth Contribution an do not incur a penalty?

[Hal_Al · Accepted solution]

There is an exception to  income from babysitting being subject to self-employment tax.. You have "household employee"  wages. If  no single employer paid your more than $2000*,  and you sat in their home**, not yours, you may be able to avoid the self employment tax. But, you will also not get credit for these wages with the Social Security Administration, for future benefits.

In TurboTax, enter at:

 Federal Taxes

Click on Wages and Income

Scroll down to Less Common Income

On Miscellaneous Income, 1099-A, 1099-C click the start button

On the next screen click the start button on Other Income not already reported on Form W-2 or Form 1099

Answer Yes on the next screen and enter the amount under Household Employee Wages

TurboTax will put the income on line 7 of form 1040 or 1040A with the notation "HSH". It is still considered earned income

*You are not subject to self employment tax (SET) if you are under age 18 and made less than $6300.

**Otherwise, she is self employed and cannot avoid the self employment tax.

[dorywilson65]

Assuming this kid earned $1,500, which qualifies as household employee wages (i.e. no need to pay the self-employment tax), does she even need to file a tax return? Or the fact that she contributed to a Roth IRA requires her to file a tax return?