If you are paying them for services, that is NOT a Gift. Also, you can NOT use a FSA to give Gifts.
Then need to report the income. If it is in your home, they are probably a "Household Employee".
Unless you are divorced (and not remarried) or widowed, Social Security tax, Medicare tax and Federal Unemployment usually do not apply. So you technically would not need to file a W-2 for them. However, it will be easier for your parents if you do file a W-2 for them.
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