You don't pay Medicare and Social Security taxes on wages paid to your parent unless BOTH of the following conditions apply:
Condition One:
Your parent cares for your child who is either of the following;
1. Under the age of 18;
2. 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.
Condition Two:
Your marital status is one of the following:
1. You're divorced and haven't remarried
2. You're a widow or widower
3. 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.
https://www.irs.gov/publications/p926
Don't ask me who writes these rules.
Following this conversation, I have a question: Can the parent/ parents that I employ to do housekeeping in my house, live in the same dwelling? Basically, can I hire them and let them live with us? Thanks much!
Not necessarily on the federal side, but you would also need to check with your state taxing authority. Parents are listed as exceptions to counting wages for social security and medicare and unemployment tax withholding. Here is the applicable IRS Publication. See table 1 and then scroll down to the parent exception paragraphs.
Yes they can live with you and be employed by you. Also, you do not count as wages, lodging provided to your employee at your home for your convenience and as a condition of employment.
I have a follow up question to this as I plan to employ my mother as a household employee and pay her around $15000. As you say, I don't pay have to pay Medicare and Social Security taxes on wages paid to my mother. However, what are her obligations? Does she owe the entire 15% or her share only or nothing at all? Thanks in advance.
Why do you want to report a gift as income at all ??? You can give anyone up to $16K per year without it being taxable to the receiver or reported by the giver on a gift tax return.
What is your pupose for hiring your mother? Are you trying to give money to live on, or are you trying to make medicare contributions or are you trying to qualify her for ACA?
For the latter two, there has to be a legitimate employer/employee relationship. There can't be a situation where you are trying to have her qualify for benefits she truly is not entitled to receive.
My mother gets a pension amount of around $5000 per year from her service in India. She lives with us now and helps with almost all the household work. She is a US citizen and files taxes every year. Because she has some assets, she does not qualify for MediCal, and because she does not have a minimum income she does not qualify for ACA. I don't want her to work outside the house, so I want to pay her for the work she is doing at our household. According to Pub 926, I don't have to withhold the taxes, but my question was related to how she would pay her taxes. Does she have to pay the social security and medicare taxes every quarter or can she do it when she files taxes? Do I have to do her wages through a formal payroll? Any help is appreciated.
Since you are paying her with a W-2 and not withholding taxes, this means she is not responsible to pay SS and Medicare taxes. She is in a special category, being your parent who does household work.
So the income mom generates from doing our household work, that we pay her, cannot be used for the purpose of ACA? Is it true that she can only use the income on W-2 or the income that has Social Security Taxes paid to secure insurance from Affordable Care Act insurance marketplace?
I have been looking at IRS publications but don't see any such guidelines. Would appreciate advise on the same.
you've posted in a few places, but can you explain the full story here? I feed like there are pieces missing.
How much does your mother currently earn (excluding Social Security)? More or less than $4400 is the only thing that matters for this question.
Are you providing more than 50% of her support?
if less than $4400 and more than 50% of her support, she CAN BE claimed as your dependent.
Is your objective to get her medical insurance via the Marketplace? is your objective just to give her spending money in return for the chores she does around the house? (I presume you are not asking her to pay rent, so there is some quid pro quo here).
can you just explain the bigger picture? it'll be easier for this forum to answer your question(s).
Thanks NCPerson.
The bigger picture is to ensure she has Healthcare coverage from the marketplace. She does have Dividend income from her Fixed Deposits (Instruments like CD's in India) which amounts to more than $4400. I am working on figuring out how much it is. She does intend to pay us rent for living with us in the basement apartment.
If her income is less than the poverty limit, she should be able to make it up in the household chores that she helps with. This is what i am trying to verify.
For the latter, if we have to pay her, it looks like we should not need to generate a W-2, as long as we stay below a certain limit.
I will keep this as the only thread for the question going forward.
okay, just saw this repsonse, so I will keep my comments to this thread going forward.
So if she has income of more than $4400, she can't be your dependent, so that case is closed.
have you assessed her eligibility for the Marketplace with this tool?
https://www.healthcare.gov/income-and-household-information/income/
note that foreign income is exlcuded from MAGI when assessing income for Marketplace eligibility.
Marketplace participants are expect to work in order to receive the premium subsidy (why would the government provide a subsiday if the person wasn't paying taxes???) . Under a certain income, Medicaid is what is available, if eligible. Otherwise, I suspect there is the private insurance market.
Thanks NCPerson,
Mom does actual work back home, taking care of our child who is under 18, Cooking (I travel and my wife has a full time job), Cleaning and taking care of our yard to keep up with HOA regulations. Her wage would be justifiable.
Will look into generating a paystub as a household employee and track performance to keep it in compliance with IRS guidelines.
Earlier in this thread, there was a question asked if Mom has to pay Social Security and Medicare tax for the wages paid on household work when she filed taxes. I see that i don't have to since parents are exempt. I did not see a confirmed 'Yay' or a 'Nay' on the same. Could you please advise?
Hi NCPerson,
There is conflicting information on whether MAGI includes foreign income or not.
Page 2 of the document at https://www.healthcare.gov/downloads/consumer_guide_for_household_income_booklet.pdf says :
Your MAGI is the total of:
Adjusted Gross Income (AGI) amount from your household’s federal income tax return
+ Any foreign income excluded from AGI
+ Nontaxable Social Security benefits, including tier 1 railroad retirement benefits
+ Tax-exempt interest received or accrued during the tax year
that means MAGI should include Foreign income excluded from AGI.
However, on the link https://www.healthcare.gov/income-and-household-information/income/ you suggested, it says foreign income is excluded from MAGI used to calculate healthcare benefits. Calling healtcare.gov, their customer services reps don't give a conclusive answer. They simply ask to submit the documents and then wait.
Is there a way to reconfirm which of the above document holds true in case of conflict?
well, I've re-read the link and it is deceiving......
https://www.healthcare.gov/income-and-household-information/income/
that means the foreign income is to be added to the AGI from the tax return. it doesn't mean it is excluded from the total. So the two links you referenced are consistent.
The bullet below states to add any "excluded foreign income" not "exclude foreign include".
s the total of
the following for each member of your household who’s required to file a tax return:
There are different definitions of MAGI for different purposes. "Modified" adjusted gross income means modified for purposes of whichever test or benefit you are looking at. MAGI for a health insurance subsidy may be different that MAGI for retirement contributions, for example.
If you pay your parent as a household employee, you must issue a W-2 although you are not required to withhold any taxes, including social security and medicare tax. Your parent is not required to pay those taxes (or self-employment tax) on their tax return. However, they don't get credit in the social security system for retirement, medical or disability benefits.