Yes, it can be used to claim the child and dependent care credit as long as your parent (grandparent of the child) claims the income.
No, they do not need any tax form. A parent is an exception to the household employee tax requirement (so called "nanny tax"). But the income IS taxable to your parent(s), particularly if you plan to claim the child and dependent care credit. You must use their SSNs and address. If it was done in your home, then they should follow the procedures provided by @Hal_Al in this thread.
Wages not counted for social security and Medicare wages. (IRS Publication 926)
Don't count wages you pay to any of the following individuals as social security or Medicare wages, even if these wages are $2,400 or more during the year.
- Your spouse.
- Your child who is under the age of 21.
- Your parent. Exception: Count these wages if both the following conditions apply.
- a. Your parent cares for your child (including an adopted child or stepchild) who is either of the following.
- i. Under the age of 18. ii. Has a physical or mental condition that requires the personal care of an adult for at least 4 continuous weeks in the calendar quarter services were performed.
- b. Your marital status is one of the following.
- i. You’re divorced and haven't remarried.
- ii. You’re a widow or widower.
- iii. You’re living with a spouse whose physical or mental condition prevents him or her from caring for your child for at least 4 continuous weeks in the calendar quarter services were performed.
- An employee who is under the age of 18 at any time during the year. Exception: Count these wages if providing household services is the employee's principal occupation. If the employee is a student, providing household services isn't considered to be his or her principal occupation.
Child and dependent care expenses have changed for 2021. You are now able to get a credit for up to 50% of eligible expenses. The amount of eligible expenses has increased from $3,000 for one qualifying person to $8,000. Additionally, for those with two or more qualifying persons, the amount of eligible expenses has increased from $6,000 to $16,000.
@mbarrera345
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