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My child's grandmother is going to provide day care in my home. I know she needs pay statements, but do I also need to produce a W2 for her? Any withholdings?

Forum|Forum|6 years ago
June 3, 2019
7 replies
1 view

The amount paid will surpass $5,000 - but we opted to use a dependent care FSA to reduce taxable income from my employer instead of the dependent tax credit.

TurboTax Deluxe iOS

Best answer by KarenJ2

There are exceptions for reporting the income you pay your child's grandmother for watching your child while you work. You can provide her a Form 1099-MISC which she would report as other miscellaneous income on line 8, 2019 Schedule 1. Other Income. She will not report it as self-employment income as she is not in the business of providing care giving services.

Please see the following links:

Family Caregivers and Self-Employment Taxes- IRS

TaxGuyBill

There are a few exceptions to what Hal_AL said below. To help us astertain if those apply to you, here are a few followup questions:

Is the grandmother your mother, or is it the other parent's mother?
Are you married to your child's other parent? If not, give details about the situation. Are you paying the grandmother, or is the other parent paying the grandmother?

Hal_Al

Grandparents are generally exempt from the "Nanny tax". You do NOT need to do withholding or pay FICA tax or issue her a W-2. She will still need to report the income (unless he total income is under the filing threshold). Paying her by check and/or issuing pay statements may help her with that, but it is not mandatory.

She will still declare the income as Household Employee Income but will not have to pay FICA (social security and medicare tax). That can be a little tricky entering in TurboTax

Reference: https://www.irs.gov/taxtopics/tc756.html

See page 5 at https://www.irs.gov/pub/irs-pdf/p926.pdf for exceptions to the grandparent exemption.

LAG1975

If there is no W-2 required, what tax form is used to report it, and how is it entered into Turbotax as income? The IRS Publications do not seem to properly address this.

Hal_Al

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 continue the interview until it completes.

TurboTax puts the amount on line 1 (wages) of form 1040 (line 7 prior to 2018) with the notation “HSH”. It is considered earned income.

Longer write-up at https://ttlc.intuit.com/questions/2548505-i-am-a-household-employee-i-have-about-12-employers-they-supply-my-supplies-n-machines-they-tell-me-what-they-want-done-and-i-make-about-1000-1500-a-yr-from-each-employer-where-should-i-put-this-income-at

ctyates_824

I received my W2 with a Box-10 $5,000. Do you think it's okay if I don't report this on my tax return? I don't plan on claiming any child care benefits as well.

Anne0907

So if I prepare W2 to my mom for $5,000 in 2019, is box 1 the only that indicate the wage $5,000. Since the social security wage, medicare wages and their taxes are excepted from nanny taxes, they should be blank, right?

thanks

Hal_Al

@Anne0907 - Right.

Anne0907

Will IRS have any question on W2 that are blank, except for Box 1 with $5,000? Do I need to include any paperwork to indicate that she is household employee and also my parent so there is no need to pay any taxes? if not, how can IRS know all the facts?

Thanks so much.

DianeW777

Due to the nature of the entry, other income will be an upgraded version to accomplish the required entries on the tax return. For this reason you will be prompted to upgrade to Deluxe.

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

bjshenjie

Hello,

I paid about $18000 for my parents to take care my kids in 2020. How do my mom claim these income and what level of turbotax software should she get? Do I need to claim these childcare fee?

Thanks in advance!

makessense999

I have spent days/countless hours attempting to get a real answer to how grandparents report income earned by providing childcare for grandchildren. Finally figured it out. It is pretty simple. Grandparents providing childcare for grandchildren in either the grandparents home or the child's home, are exempt from any payroll taxes. The IRS does not allow payment of social security/medicaid taxes on income paid to grandparents for providing domestic service. There are exceptions for divorced/widowed parents of the child who are allowed to pay social security taxes for the grandparent.

The parent of the child can claim the daycare tax credit but must provide the name and social security number of grandparent providing childcare on the child tax credit form.

The grandparent reports the exact amount earned (as reported by the child's parent on the daycare tax credit) on Schedule 1, line 8 with the description childcare for grandchildren. The schedule 1 provides the documentation so a 1099 MISC is not necessary. The important thing is that the parents daycare expense reported must be the same as the income reported by the grandparent.

The income reported on Schedule 1 is then reported on 1040 line 8.

When using an on-line/efile service the grandparent will need to scroll through to Misc Income (not 1099 misc) and then scroll down to Other Income-fill in the amount and the description box. The on-line service will generate a Schedule 1 to go along with the 1040.

Bonoz09

I paid my mother to babysit in my home in 2021. I understand she is exempt from FICA tax and i think i understand how to show this income on her return. However other than adding her as a Daycare provider on my return , do i still need to check the "Did you have a household employee ? " box n Turbo Tax on MY return ? Since she's exempt and i dint have to pay those taxes for her as an employee , should i still be checking this box? I have it checked currently and there was no other follow up questions regarding this. I would think they would have still asked questions on this employee in order to know what i paid out and to who and for what ? I want to ensure the paper trail between hers and my return is as clear as possible. I plan on taking the Child Care tax credit based on this payment. Thanks

@nannytax

DianeW777

A parent is not considered an employee for social security, medicare or FUTA (federal unemployment) taxes. Because employment taxes are not required for your parent, then a Schedule H is not required. Do not check the box for a household employee.

Your mother must report the income on her tax return. You can issue her a Form 1099-NEC for her services, but either way she will pay her own social security and medicare tax as well as any potential personal income tax. The fact that you are not required to pay employer taxes for her or withhold any income tax for her does not negate her responsibility to pay the required tax on income she earned from her services.

She will report the income as self-employment. You will take the credit for child and dependent care for the same amount as long as it doesn't exceed the maximum credit allowed based on number of children.

IRS Publication 15

Parent employed by son or daughter.

When the employer is a son or daughter employing his or her parent, the following rules apply.

Payments for the services of a parent in the son’s or daughter’s (the employer’s) trade or business are subject to income tax withholding and social security and Medicare taxes.
Payments for the services of a parent not in the son’s or daughter’s (the employer’s) trade or business are generally not subject to social security and Medicare taxes.

Social security and Medicare taxes do apply to payments made to a parent for domestic services if all of the following apply.

The parent is employed by his or her son or daughter.
The son or daughter (the employer) has a child or stepchild (including an adopted child) living in the home.
The son or daughter (the employer) is a widow or widower, divorced and not remarried, or living with a spouse who, because of a mental or physical condition, can't care for the child or stepchild for at least 4 continuous weeks in the calendar quarter in which the service is performed.
The child or stepchild is either under age 18 or, due to a mental or physical condition, requires the personal care of an adult for at least 4 continuous weeks in the calendar quarter in which the service is performed.

Payments made to a parent employed by his or her child aren't subject to FUTA tax, regardless of the type of services provided.