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my parents babysit our children; how do we file so they can earn social security benefits

Forum|Forum|6 years ago
December 31, 2019
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Hi,

My wife and I have 2 children who we claim as dependents. We both work full time and rely on our parents to live at our home and provide full-time babysitting services. We pay them about $6K/yr, and so they need to file taxes (they also have other investment income but no other wages).

Are they employees, or self-employed?

From the accepted answer to this question, by @Hal_Al, it appears that my parents have the choice to report this as self-employment income, in order to earn social security / Medicare credit. However, from Table 1 in https://www.irs.gov/pub/irs-pdf/p926.pdf, it does not appear that I need to pay any medicare taxes, or file a Schedule H.

In this scenario, can they earn medicare / social security credit? What forms do I need to file, and how do they report this income? I have not been able to find the relevant documentation on the IRS site that would clarify this, so pointers would be much appreciated.

Thanks

Best answer by Hal_Al

It's optional.

Because they are your parents and work in your home, they are exempt from the "nanny tax".

But, if they want to earn social security benefits, they can pay social security and medicare tax on the income (the tax is roughly 14% of the income). Instead of you filing Schedule H, as part of your return, they should file two Schedules C and Schedules SE as part of their return. They will be filing as self employed individuals.

You filing Schedule H is an alternate way to do it.

Hal_AlAnswer

Employee

It's optional.

Because they are your parents and work in your home, they are exempt from the "nanny tax".

But, if they want to earn social security benefits, they can pay social security and medicare tax on the income (the tax is roughly 14% of the income). Instead of you filing Schedule H, as part of your return, they should file two Schedules C and Schedules SE as part of their return. They will be filing as self employed individuals.

You filing Schedule H is an alternate way to do it.