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pnjncc
New Member

I plan to watch my grandson in my home next year. My daughter will pay me $14,000. How to I report this to allow ROTH contribution. What taxes do I pay?

 
3 Replies
Bsch4477
Level 15

I plan to watch my grandson in my home next year. My daughter will pay me $14,000. How to I report this to allow ROTH contribution. What taxes do I pay?

Since the care is in your home you would likely be paid in cash or will receive form 1099-NEC. In either case you would report that income as being self employed and pay income tax as well as self employment tax on that income. You can deduct any expenses related to your business activity.  You would also be able to claim earned income credit if otherwise eligible and contribute to a Roth IRA to a maximum of $7,000 assuming you are at least  age 50. 

 

Opus 17
Level 15

I plan to watch my grandson in my home next year. My daughter will pay me $14,000. How to I report this to allow ROTH contribution. What taxes do I pay?

You report that you are self-employed on schedule C.  You report the gross income, and you can deduct legitimate expenses.  For a home day care, this can include a percentage of your housing costs, you can start to research this here.

https://www.irs.gov/taxtopics/tc509

 

You pay income tax and self-employment tax on the net profit.  Your compensation for IRA purposes is your net profit minus half the self-employment tax, so your compensation is about 92% of your net profit after expenses.

 

Note that if married, your spouse can also make an IRA contribution based on your compensation, even if your spouse does not have compensation in their own name.  It is not necessary to make your spouse a co-owner or employee of the business.

 

However, note that if you fail to report your legitimate expenses in order to claim higher compensation and make a larger IRA contribution, that can be considered tax fraud if you are audited.  

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
Opus 17
Level 15

I plan to watch my grandson in my home next year. My daughter will pay me $14,000. How to I report this to allow ROTH contribution. What taxes do I pay?

Lastly, also note that depending on your other sources and amounts of income, having taxable income from a home day care may increase the percentage of tax you pay on your social security benefits, if you receive benefits at this time.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
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