My wife occasionally watched these kids throughout 2022 as they needed childcare for their freelance business. They now want to send us a 1099 but from what ive read online, she should be a W2 (unless I’m mistaken). Is it possible that my wife is correctly classified as a 1099 if they are considering us a business expense?
It was split between theirs and ours. I would say about 50/50.
Your spouse has self-employment income. The child's parents do not have to issue a W-2 or a 1099. But they will need your spouse's Social Security number or her Tax ID in order to get the childcare credit. They can take that credit if they paid her to care for their child so they could work. If she does not want to give out her SS number she can get a Tax ID from the IRS and give them that number to use on their tax return when they claim the credit.
https://www.irs.gov/individuals/individual-taxpayer-identification-number
Your spouse will need to pay self-employment tax for Social Security and Medicare. If she has any expenses she can prepare a Schedule C. There are often expenses incurred by nannies and babysitters that can be claimed on the Schedule C.
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