@mbarrera345 wrote:
@Hal_Al
Follow up question from my mom:
If my daughter pays me 12,000 for caring for my grandchildren in my own home, how do I report this as income, is it taxable income, and can she still claim the childcare tax credit?
She showed me how to report it with the "HSH " notation but I'm not caring for them in her home. Does this matter?
Let's go back, there are two different situations being discussed here, and this conversation is spread out among several different people over many years.
1. If Amy provides care in Betty's home for Betty's children, Amy is Betty's household employee. Betty is generally required to file schedule H, withhold and pay social security and medicare tax (household employee tax), and give Amy a W-2
1A. There is an exception to this rule if Amy is Betty's parent. Most of the time, if the caregiver is the parent of the taxpayer (the children's grandparent), then household employee tax is not required to be withheld and Betty does not give Amy a W-2. Amy is supposed to voluntarily report the income as household employee wages. This is no longer added to form 1040 line 1 with "HSH", there is a special line just for this purpose on the new form 1040, line 1b.
1B. And (of course) there is an exception to the exception, where sometimes Betty must withhold household employee taxes even if the caregiver is their own parent, but that does not apply here.
2. However, if Amy provides care for Betty's children in Amy's own home, then Amy is considered self-employed and will file a schedule C. This is treated like any other home business or self-employment, and there are no exceptions for grandparents caring for grandchildren. Amy is a self-employed caregiver whether she is caring for relatives or strangers, it doesn't matter. Amy reports her gross income on schedule C. She may be allowed to deduct certain household expenses as "business use of your home", otherwise known as the home office deduction. See the links below. Net income or profit after subtracting expenses is subject to self-employment tax, and maybe income tax, depending on the amount of profit and the care giver's other taxable income.
Separate from all this is the fact that families help each other all the time, and there is no squad of IRS agents going around looking to audit grandmas who babysit their grandkids from time to time. But if the taxpayer wants to pay grandma and claim a tax credit for the expense, the IRS is going to be looking to see if grandma has matching income. If you're going to treat it like a business, you have to go all-in, you can't do it half way.
And very lastly, if you decided that you did want to report this as household employee wages (even though that is technically incorrect), the instructions have changed, since household employee wages now go someplace different on form 1040. In turbotax, go to "Miscellaneous Income, 1099-A, 1099-C"; then "Other income not already reported on a Form W-2 or Form 1099"; then "Did you receive other wages" (answer Yes); then "Wages Earned as a Household Employee." Enter the amount. Click "Continue", then keep hitting Continue to skip past the other types of income that don't apply to you.
My guess is that, if you report this as household employee wages, the IRS will probably be satisfied. However, it is probably not technically correct since, if you provide care in your own home, you are usually considered self-employed.
https://www.irs.gov/taxtopics/tc509
https://www.irs.gov/pub/irs-pdf/p587.pdf
https://turbotax.intuit.com/tax-tips/small-business-taxes/the-home-office-deduction/L1RZyYxzv
