In this case, Grandma is considered to be a Household employee. She will have to pay income tax on wages, but she not required to pay Social Security or Medicare tax, if she earned less than $2,700. If she made less than $2,700 no W2 Form is required, and she would just report her wages on Form 1040, line 1b.
Whether she qualifies to get Earned Income Credit and free health care, it'll depend on how much money she makes. To qualify for free healthcare, they might ask for letters to prove her income or might just want to see her tax return.
- Her daughter will have Schedule H Filing Requirements, she might have to file a Schedule H if:
• The taxpayer paid a household employee cash wages of $2,700 or more in 2024.
• The taxpayer paid cash wages of $1,000 or more in any calendar quarter of 2023 or 2024 to all household employees. If this test is met, the first $7,000 paid to each employee in 2024 is subject to FUTA tax.
• The taxpayer withheld federal income tax.
If she paid less than $2,700 she would not be required to pay Social Security or Medicare tax. Her daughter should be able to claim the Child and Dependent Care Credit on her return.
[Edited 2/19/25 | 7:17 AM PST]
