So here's my question. Due to Covid we aren't using all of our FSA funds for daycare to pay our typical provider because they shut down for a period of time. My mother-in-law watched our kids in her home for 3 weeks this summer while we were working so we paid her $1,500 for those three weeks. We submitted her name, address, ssn, etc. to our FSA plan administrator and were reimbursed that amount. Now for tax purposes here are my questions:
1. Does our FSA plan administrator automatically report her information to the IRS once they send us our reimbursement?
2. Do I need to issue her a 1099-Misc?
3. If I do issue the 1099-Misc do I file that with the IRS too or just hold it since we're individuals and not a company?
4. Since we won't be claiming the dependent care credit due to use of the FSA funds and not exceeding the amount we allotted do we need to list her on our returns on form 2441 or do we even fill that out at this point? (in past years we'd use all $5,000 of FSA funds and then claim the 20% on the extra $1,000 since our child care expenses pre-covid were always over $8,000).
5. Where does my mother-in-law claim the amount we paid her since she provided the services in her home? Does she need to do a schedule "C" or does she just claim it as other income or somewhere else? She does not run a daycare, just watched her grandkids to help us out so it's not really a profit making endeavor for her.
Thanks, just want to make sure I get this right.
