Correct, if your parents do not meet the requirements to claim them then they are not your dependents.
Correct, for parents you do not need to withhold FICA tax and you do not need to issue a W-2. Please see 2021 Publication 926 pages 5 and 6 for details.
Your parents will still have to report the income on their tax return unless their total income is under the filing threshold. If your parents are required to file a return they will enter the income like this:
- Login to your TurboTax Account
- Click on “Federal” on the left
- Scroll down the screen until to come to the section “Less Common Income” and click "Show more"
- Click "Start" next to "Miscellaneous Income"
- Choose "Other Income not already reported on a Form W-2 or Form 1099 "
- Select "Yes" for "Other Wages Received"
- Enter amount "Wages Earned as a Household Employee" screen
Please see this discussion for additional information.
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