Question

Grandparent providing childcare

Forum|Forum|3 years ago
January 13, 2023
3 replies
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My mom is 63 and will be watching my kids. She will be paid $2000/month. Does it matter if it's in our home or her home of how she will file her taxes? Do we need to withhold her taxes or would she be an independent contractor? Not sure how any of this works. Help!

leeloo

The IRS has rules for employing family members, depending on who they are and the type of job they perform.

Parent employed by son or daughter.(p13)

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 living in the home;
The son or daughter (the employer) is a widow or widower, divorced, 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 a calendar quarter; and
The child or stepchild is either under age 18 or requires the personal care of an adult for at least 4 continuous weeks in a calendar quarter due to a mental or physical condition.

CatinaT1

It depends. You have options in this scenario since she is a grandparent of the children.

If she wants to claim the earned income credit, get credit for Social Security benefits, or have earned income for the purpose of making IRA contributions; or if you want to claim the Dependent Care Credit, report the income in one of two ways:

Report the income you pay her as a contractor (if she watches the kids in her home). You do not need to do anything more than pay her. She will track her income and expenses and report the income as self-employment on Schedule C with her tax return.
She could be classified as a household employee (if she watches the kids in your home). The nanny tax rules do not apply since she is a grandparent. In this case, you would issue her a W2 and file a Schedule H with your tax return. If you choose to classify her as a household employee, this article will be helpful in further explaining the details of Schedule H and Household Employment Tax.

If you are not claiming the Dependent Care Credit, she could report the income as Miscellaneous Income and would describe the income as babysitting grandchildren and the amount so the IRS will not think she is in the babysitting business. 

@subaru2023

[Edited 1.13.23, 9:45am PST]

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leeloo

Please see this link. https://ttlc.intuit.com/community/taxes/discussion/paying-parents-to-care-for-my-child/00/2783755