@cbusa wrote:
If a taxpayers parent babysits their grandchildren in the taxpayers home and the taxpayer pays their parents/child’s grandparents they are exempt from nanny tax? Does the taxpayer need to 1099 their parent for amounts paid? Is the taxpayer able to claim these amounts paid as care expenses in terms of the dependent care credit?
If the caregiver works in your home, they are your household employee. You are required to collect and pay the nanny tax unless an exemption applies. You ARE exempt from paying the household employee tax (nanny tax) if the employee is your parent. You are not required to withhold federal and state income tax, but you may if you want to. You must issue the employee a W-2 at the end of the year. There are several web sites that will issue an electronic W-2 to the employee and e-file the required W-2 and W-3 copies to the IRS and social security administration for a small fee, usually around $5.
You would never issue a 1099-MISC or 1099-NEC. If the caregiver is working in their home, they are an independent contractor and are responsible for their own taxes. Only businesses have to issue 1099s, private individuals do not. If they are working in your home they are a household employee and you must issue a W-2 if you pay more than $2200 over the year. If you pay less than $2200, you do not need to issue a W-2, but the employee must still report their income.
To claim the child and dependent care credit, you must pay a qualifying caregiver to care for a qualifying dependent while you (and your spouse if married) are working. A grandparent can be a qualifying person for the dependent care credit; however, the grandparent is not a qualifying person if you can claim the grandparent as your dependent (such as because they live with you or you provide most of their financial support). If you are audited, you would need receipts or canceled checks to show what you paid to the grandparent for childcare. You need the caregiver's social security number to claim the credit. The IRS will use that SSN to look for matching income on the caregiver's tax return.
