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pasknyc
Level 2

grandparent watching kids - how to file 1099 and taxes

I have 2 questions. I hope to have my mom watch our kid (her grandchild) at her house in NJ and to pay her for it. We live in NY.  My understanding is she would NOT be a household employee since she would be watching the grandchild at her house. I also understand I have to issue her a 1099-MISC. 

Questions:

1) Mom is in NJ (where she watched child) vs. I live in NY - do I send 1099-MISC to both IRS and state? if so which state (NJ or NY)?

2) How does mom file her taxes so as not to pay self employment tax - would this just go on schedule 1 line 8 Other income or does she need to still file self employment? (she is not in the business/trade of daycare - as per: https://www.irs.gov/businesses/small-businesses-self-employed/family-caregivers-and-self-employment-...)

3) Is it still the case that mom will NOT pay FICA tax either (i.e. like in the parent exclusion of nanny taxes) if it's  schedule 1 line 8 other income? So the only tax she would pay is state/federal income tax?

1 Best answer

Accepted Solutions
AmeliesUncle
Level 11

grandparent watching kids - how to file 1099 and taxes

I hate to disagree with MacUser, but I agree with the OP; a grandparent watching only their grandchild is rarely a business.  In most cases it should be reported as "other income".  

 

The source of the payments do not matter.

 

However, properly reporting it as "other income" will likely result in MORE tax than if it was reported as a business.

 

If it was a business, all of the expenses would be a deduction.  For a daycare business, that is A LOT of deductions.   It would almost certainly result in a loss.   Interestingly, if the grandparent were to continue to report losses year after year, the IRS could audit her, look at the situation, and reclassify it as a non-business ... which would be reported as "other income" with no deductions.  

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36 Replies
macuser_22
Level 15

grandparent watching kids - how to file 1099 and taxes

Only businesses issue 1099-MISC form in the course of doing business, individuals do not.     No 1099-MISC is necessary for her to enter her self-employed income.

 

The Federal SE tax must be paid on her tax return  for any self-employed income over $400. The SE tax for self-employed income IS the FICA tax.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
pasknyc
Level 2

grandparent watching kids - how to file 1099 and taxes

My understanding is that this income is not self-employment income because she is not in the trade or business of providing day care -as per this website: https://www.irs.gov/businesses/small-businesses-self-employed/family-caregivers-and-self-employment-...

 

Is that correct?

macuser_22
Level 15

grandparent watching kids - how to file 1099 and taxes

No.   Care giving in the home of a elderly or disabled person has nothing to do with baby sitting children in ones own home which makes that person fall under the rules for daycare businesses whether they take care of 1 child or 30 -  the tax rules are the same.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Anonymous
Not applicable

grandparent watching kids - how to file 1099 and taxes

in general, any individual who carries on a trade or business is subject to self-employment tax. An activity carried on for a livelihood or in good faith to make a profit is a trade or business. A taxpayer does not actually have to make a profit to be in a trade or business as long as there is a profit motive. The activity does not have to be a regular full-time job to be subject to SE tax 

 

pasknyc
Level 2

grandparent watching kids - how to file 1099 and taxes

I was referring to this paragraph on the IRS website. How is my situation different?

https://www.irs.gov/businesses/small-businesses-self-employed/family-caregivers-and-self-employment-...

Q 2: Must a taxpayer pay self-employment tax on the income received from a state agency to care for his grandchildren so that his daughter can work? Taxpayer doesn't have a day care business or look after any other children. Taxpayer receives Form 1099-MISC from the state agency with the amount paid shown in Box 7 as nonemployee compensation.

A 2: No, the taxpayer does not owe self-employment tax on amounts reported on the 1099-MISC he received from the state agency if he is not engaged in a trade or business of providing day care services, as appears to be the case in this situation. The taxpayer must report the full amount of the payment on line 7a, Other Income, of Form 1040 or 1040-SR.

macuser_22
Level 15

grandparent watching kids - how to file 1099 and taxes


@pasknyc wrote:

I was referring to this paragraph on the IRS website. How is my situation different?

https://www.irs.gov/businesses/small-businesses-self-employed/family-caregivers-and-self-employment-...

Q 2: Must a taxpayer pay self-employment tax on the income received from a state agency to care for his grandchildren so that his daughter can work? Taxpayer doesn't have a day care business or look after any other children. Taxpayer receives Form 1099-MISC from the state agency with the amount paid shown in Box 7 as nonemployee compensation.

A 2: No, the taxpayer does not owe self-employment tax on amounts reported on the 1099-MISC he received from the state agency if he is not engaged in a trade or business of providing day care services, as appears to be the case in this situation. The taxpayer must report the full amount of the payment on line 7a, Other Income, of Form 1040 or 1040-SR.


Are you saying that *you* are not paying your parent but a "state agency" is?   That section is for children removed from the parents and placed by the state in a care givers care.

 

That is not what your question said.    That entire reference does not apply  to a grandparent baby sitting your child that you are paying for.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
pasknyc
Level 2

grandparent watching kids - how to file 1099 and taxes

I am just trying to understand:

No, it's me paying the parent so that I can work. I am just trying to understand why there is a difference (what does it matter who pays from her perspective). 

1) She is getting paid to watch her grandchild so that I may work - same as in paragraph below 2) She does not have a day care business or look after any other children - same as per the IRS paragraph. 

3) is there a reason she then does not claim payment on line 7a of 1040 as per paragraph below? 

macuser_22
Level 15

grandparent watching kids - how to file 1099 and taxes


@pasknyc wrote:

I am just trying to understand:

No, it's me paying the parent so that I can work. I am just trying to understand why there is a difference (what does it matter who pays from her perspective). 

1) She is getting paid to watch her grandchild so that I may work - same as in paragraph below 2) She does not have a day care business or look after any other children - same as per the IRS paragraph. 

3) is there a reason she then does not claim payment on line 7a of 1040 as per paragraph below? 


 

#3 Of course there is. READ that aricle and what it is for in the first paragraph.

"2 below" says "income received from a state agency to care"  As in a foster child being paid for by the state. 

 

You are beating a dead horse.   I will not comment further.

 

That entire IRS article has nothing to do with your situation.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
pasknyc
Level 2

grandparent watching kids - how to file 1099 and taxes

This whole thread didn't answer my question and I believe you are giving incorrect advice  (Turbotax competitors are giving the opposite advice which makes me confused).  my main question was does my mom pay self employment tax. I am not trying to be combative i just want an actual answer to the question instead of someone telling me "i am beating a dead horse". 

my understanding is - self employment definition applies to:

  • She’s in the business of providing childcare.
  • She depends on the income.
  • She puts time and effort into the activity — This shows that she intends to make it profitable.

1) She is not in the business of providing child care 

2) She does not depend on the income

3) She does not have a profit motive since it's her grandchild.  

Therefore self employment tax does not apply.

 

Is the above correct? - if not, why not. 

 

 

macuser_22
Level 15

grandparent watching kids - how to file 1099 and taxes

Sorry but I will not continue a nonsense argument that has no basis in tax law.

It's the grandmothers income, not yours, and she must comply with tax law.

 

Refer to IRS Pub 17

https://www.irs.gov/pub/irs-pdf/p17.pdf page 44 for the rules of child care providers  and babysitters.

 

Childcare providers. If you provide childcare, either in the child's home or in your home or other place of business, the pay you receive must be included in your income. If you aren’t an employee, you’re probably self-employed and must include payments for your services on Schedule C (Form 1040 or 1040-SR), Profit or Loss From Business. You generally aren’t an employee unless you’re subject to the will and control of the person who employs you as to what you’re to do and how you’re to do it.


Babysitting. If you’re paid to babysit, even for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
VolvoGirl
Level 15

grandparent watching kids - how to file 1099 and taxes

Another consideration might be if you are planning to take the Child Care Credit for it on your return.

macuser_22
Level 15

grandparent watching kids - how to file 1099 and taxes


@VolvoGirl wrote:

Another consideration might be if you are planning to take the Child Care Credit for it on your return.


I don't know why that would be a consideration.   If not claimed as a deduction then the IRS might never catch any  failure to report the income on the grandmothers part, but that that does not allow one to violate tax law just because they might not be caught.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
pasknyc
Level 2

grandparent watching kids - how to file 1099 and taxes

I am not taking childcare credit but i plan on paying my mother using my dependent care FSA - but i wanted to know if it's better for both her and I tax-wise to be my household employee (and watch the kids at my house) and take the nanny tax exception or to be in her house and report the income as "hobby" income (since she is not in it for making a business) which multiple other tax sites are suggesting is fine. Although the person above seems to suggest that is not the case. 

macuser_22
Level 15

grandparent watching kids - how to file 1099 and taxes


@pasknyc wrote:

I am not taking childcare credit but i plan on paying my mother using my dependent care FSA - but i wanted to know if it's better for her tax-wise to be my household employee (and watch the kids at my house) and take the nanny tax exception or to be in her house and report the income as "hobby" income (since she is not in it for making a business) which multiple other tax sites are suggesting is fine. Although the person above seems to suggest that is not the case. 


If  a household employee and a grandparent then the social security and medicare tax does not  apply.   She still must report the income as household employee income that will count at ordinary income (same as W-2 income) on her tax return, but no additional tax.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
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