Can I claim the child care credit if I paid my caregiver cash and didn't pay nanny taxes?

[jdmccartney2]

I am worried that I will be audited and penalized if I claim the credit without paying nanny taxes

[DianeW]

I can give you the requirements under the tax law.  If the nanny was providing care in your home then Schedule H is required.  And you are also required to issue a W2 to the nanny.

Schedule H is used to report employment taxes for your household employees. Because you are an employer, you need an Employer Identification Number (EIN) to complete the Schedule H. If do not have this number already, you may apply for one online and receive it immediately after completing a short application. See How Do You Get a Business Tax ID Number? for more information. Note that you and your spouse may apply for the EIN jointly if you wish.

• Do I need to file IRS Schedule H?
• Who is considered a household employee?
• Where is IRS Schedule H?

If the services were not performed in your home then you should issue a Form 1099-MISC if the amount you paid was more than $600 to one individual.  Schedule H would not be required and the expenses for child care would be listed on your return if you meet the requirements for the child care credit.