Q. Ok so does that mean I don’t even have to issue a W-2 to my mother? Can I just pay her cash and she claim it as income?
A. As previously stated, a W-2 is not mandatory, but some recommend it. The most important thing is that she report it as income.
Q. That begs the question is which option to pick as in reality it was a mixture of our house and her home. Is one or other method more beneficial for my mother (who is retired and on SS and some investment income).
A. As previously stated, Household employee (HSH) is better for her, as she does not have to pay social security and income tax, under the grandma (or $2200) exception. But, she MUST report the money from the work in her home, as self employment. I'm not sure if she would be allowed to report the other portion as HSH income, since that work was for the same client (you) as her self employment.
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