What is DH?
Some points here.
1. If you enroll in a dependent care FSA at work, you will have to submit proof to the administrator that you paid qualified child care expenses. Anyone who is your dependent is not a qualified person, nor is a sibling of the child being cared for. The child's other parent can't be a paid caregiver for an FSA.
2. Paying someone for child care is a personal expense for you, and has nothing to do with your side gig. It is not an ordinary and necessary expense of the side gig and you can't deduct it as a business expense.
3. You could hire someone to care for your child who also works in your business, but those are two separate transactions. If the caregiver works in your home on your schedule, they will generally be your household employee. You are required to withhold and pay household employee tax and to issue them a W-2. If they provide care in their own home or other place of business, they are generally an independent contractor. You do not issue a 1099 to someone who works for you in a personal capacity (not part of your business). They would be responsible to keep business records and report their income on their own schedule C. You will need to give their name, address and SSN or tax ID number to the FSA administrator and to the IRS, to qualify to exclude the FSA from your taxable income. The IRS will look for the caregiver to report matching income.
