Question

Paying Grandparent with Dependent Care FSA, how to report/ do I need to issue 1099-MISC

Forum|Forum|5 years ago
January 27, 2021
1 reply
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So here's my question. Due to Covid we aren't using all of our FSA funds for daycare to pay our typical provider because they shut down for a period of time. My mother-in-law watched our kids in her home for 3 weeks this summer while we were working so we paid her $1,500 for those three weeks. We submitted her name, address, ssn, etc. to our FSA plan administrator and were reimbursed that amount. Now for tax purposes here are my questions:
1. Does our FSA plan administrator automatically report her information to the IRS once they send us our reimbursement?
2. Do I need to issue her a 1099-Misc?
3. If I do issue the 1099-Misc do I file that with the IRS too or just hold it since we're individuals and not a company?
4. Since we won't be claiming the dependent care credit due to use of the FSA funds and not exceeding the amount we allotted do we need to list her on our returns on form 2441 or do we even fill that out at this point? (in past years we'd use all $5,000 of FSA funds and then claim the 20% on the extra $1,000 since our child care expenses pre-covid were always over $8,000).
5. Where does my mother-in-law claim the amount we paid her since she provided the services in her home? Does she need to do a schedule "C" or does she just claim it as other income or somewhere else? She does not run a daycare, just watched her grandkids to help us out so it's not really a profit making endeavor for her.

Thanks, just want to make sure I get this right.

Not A Product Question

M

MAK70

The answers to your question- if you have more, just add to this thread!

1. The FSA will not report to the IRS automatically, but they are required to keep the records.

2. You do not need to issue her a 1099-MISC (NEC) because the payments were not made in the course of your business activity.

3.No 1099-MISC is needed.

4.Yes, you will have to provide the Child Care provider information (her social security number) on the Form 2441- when you have the Dependent Care Benefits, you are required to report the information like the Dependent Care benefits. The extra $1,000 will be taxed as regular income- but Turbo Tax will report the information based on your entries.

5. Your mother-in-law can report as Self-Employment income on Schedule C if it is her trade or business.

R

rontana1Author

Thanks so much, just for my mother-in-law's clarification if she was just helping us out and she is not a typical daycare provider i.e. not her typical business would she still do a schedule "C" or would she just report it as other income on her 1040? I know with the schedule "C" she could deduct some expenses but I doubt she has kept receipts for juice boxes and mac-n-cheese from the summer lol. Would there be any benefit to her using the schedule "C" even if it's not her typical business?

M

MAK70

When you file a Schedule C, you pay Social Security and Medicare taxes on the net business income (income less expenses). In general, if it is not self-employment income, it would fall into the category of "Hobby Income".

Earning side income: Is it a hobby or a business?

@rontana1