The Essentials: Form — Childcare, Babysitting & Nanny Business
"Forming" your business looks completely different depending on which side of the employment relationship you're on. A solo nanny is usually the household employee of the family, not a separate business entity at all; a daycare operator or nanny agency owner is forming a real small business with its own EIN, and possibly an LLC.
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If You're a Household Employee (Most Solo Nannies)
If a single family controls your schedule, provides your work location, and directs how you do the job, the IRS considers you their household employee, not an independent contractor, this is true even if the family calls it 1099 work, because classification depends on the actual working relationship, not what's written on a form. As the employee, you don't form a business entity; the family is the one responsible for issuing a W-2, withholding Social Security/Medicare, and paying their share of employment taxes ("nanny tax") once your pay crosses the annual household employee threshold.
If You're Running an Agency, Daycare, or Multi-Client Sitting Business
Once you're taking on multiple family clients as a genuinely independent business (setting your own hours, using your own methods, working from your own location for a daycare), an LLC is worth the $50-500 state filing fee for the liability separation, a lawsuit over an injury during care shouldn't be able to reach your personal assets. Get an EIN from the IRS (free, instant online) even as a solo LLC, since most background-check platforms, business bank accounts, and licensing applications ask for it separately from your SSN.
Business Licenses Beyond Childcare Licensing
Separate from any state childcare licensing, check whether your city or county requires a general business license to operate any home-based business, many do, with fees typically $50-150/year. If you're running a daycare, some jurisdictions also require a zoning variance or home occupation permit confirming residential childcare is allowed at your specific address, which is a different approval than the childcare license itself and easy to miss.
Registering Your Business Name
If you're operating under a name other than your own ("Sunshine Nanny Agency" rather than your legal name), file a DBA ("doing business as") with your state or county, typically $10-100. This is required before you can open a business bank account or sign contracts under that name, and most banks will ask to see the DBA filing before letting you deposit checks made out to the business name rather than your personal name.
Getting the Sequencing Right
The order matters: form the entity (if applicable) and get your EIN first, then open the business bank account, then apply for any local business license or childcare license, since several of those applications ask for your EIN or entity paperwork as a prerequisite. Doing it out of order, for example applying for a childcare license before you have an EIN, commonly means resubmitting an application and losing 2-4 weeks of processing time.
A Worked Example: Solo Nanny vs. Small Daycare
A solo nanny working for one family earning $50,000/year files no separate business paperwork at all, the family issues a W-2, and the nanny's only "formation" step is confirming that classification is correct and matches the contract. A person opening a 5-child in-home daycare instead forms an LLC ($100-300 depending on state), gets an EIN (free), opens a business bank account, files for a local business license ($50-150/year), and applies for state childcare licensing (fees vary, often $50-500 plus inspection). The daycare path takes real weeks of sequential paperwork before the first dollar of revenue; the solo nanny path takes almost none. Neither is "better", they're different businesses with different capital and time requirements, and conflating them is why some new operators feel blindsided by how much more setup a daycare needs.
The Mistake That Costs the Most
The costliest formation mistake is skipping proper classification review and assuming a family calling you a "1099 contractor" settles the question. If the IRS or a state agency later reclassifies the relationship as employment (which is common, since most in-home nanny arrangements meet the legal test for employee status), the family faces back payroll taxes and penalties, and you may have unknowingly underpaid your own self-employment tax obligations or missed out on unemployment insurance eligibility. Confirm classification honestly at the start rather than defaulting to whatever's easiest to set up. If you're ever unsure, a 30-minute consultation with a local employment attorney or accountant familiar with household employment is cheap insurance against a much larger correction later.
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FREQUENTLY ASKED QUESTIONS
Do I need an LLC just to babysit occasionally?
No. Occasional, informal babysitting for a handful of families doesn't need a formal entity. An LLC becomes worth considering once you're running something with real liability exposure at scale, a licensed daycare, a multi-nanny agency, or a business with employees of your own.
If a family calls me a 1099 contractor, does that settle my classification?
No, the IRS looks at actual control over your schedule and methods, not the label used. Most in-home nannies working set hours at a family's direction are legally household employees regardless of what a contract calls them, and misclassification carries penalties for the family, not you.
What's the cheapest way to form an LLC for a small daycare?
File directly through your state's Secretary of State website rather than a formation service, the state filing fee alone (typically $50-500 depending on the state) is often all you need; a paid formation service mostly adds convenience, not legal protection you couldn't get filing it yourself.
Do I need a separate business bank account as a solo nanny?
It's optional as a household employee since your pay is wages, not business revenue. If you're running a daycare or agency with its own EIN, a separate account is close to mandatory for clean bookkeeping and is required by most banks before they'll let you deposit checks made out to the business name.
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