Q. Do I have to give her a W-2?
A. You do not "have to". You could and some say "should" give he one if she worked in your home*. But, she can report the income without a W-2.
Q. I can claim DC FSA with after paying her. What do I need to show to claim the money?
A. Yes. The IRS requires no paper work. Your DCFSA administrator may. Ask them. Usually it just a matter of providing a name and SS# on a form.
Q. What does she need to do in her tax filing?
A. If she is a household employee, she's reports the wages on line 1 of form 1040 with the notation HSH. She may not have to file if her total income is less than $12,200 and she is not filing a joint return. If she is self employed, she reports the income on Schedule C and also files Schedule SE to pay her social security and Medicare tax. A self employed person has to file with as little as $400 of income.
*If she works in your home, she is considered a Household Employee. If she works in her home, she is a self employed person.
