Childcare credit and grandmother caring for children as household employee

[waterskier]

My wife and I both work and her mother lives with us.  We file jointly.  Her mother has a small part time job and also cares for our children.  She also receives SS.  We paid her $3000 for 2019 and also spent about $4000 on summer camp childcare as well.  We put $5000 into company Childcare FSA.  How do we claim the money we paid to her?  Also, how does she claim the money paid to her on her taxes to match up??  I assume she would be a household employee and we do not pay nanny tax since she is my wife's parent.  Where it says to input income as a household employee it says only if under $2100, but since she is my wife's parent I read another answer on here that said the limit does not come into play. 

Any help in clarification is appreciated.  THANK YOU

[JotikaT2]

In regards to the Child & Dependent Care Credit, you can claim the amount of child care costs paid to your mother in law since she is not limited as a provider per the attached guidelines.  You will need to report her name, address, and identification number (SSN or EIN) on your return.

Child & Dependent care requirements

Your mother in law will need to report the income on her return as self-employment income.  She can select that she was paid in cash or checks if she was not issued a 1099-Misc.

She would not be considered a household employee unless she met the following requirements:

• Care for a child under 18 who has a physical or mental condition needing care for at least 4 continuous weeks
• Your marital status is either divorced, widow, or living with a spouse with a condition which prevents them from caring for the child

[waterskier]

Thank you for the reply. 

This is what is throwing me off.  She would qualify as a Household Employee.  And then it says wages not counted even if it is over $2,100 (for 2019).  

So she would not have to pay taxes in that situation???

Or would it only be if it was under $2,100.  

[macuser_22]

Yes, she has to pay tax on the income if she is required to file a tax return.   It would be household employee wages if the care to place in the child's home.  If it took place in the grandparents home then it would be self-employed income.   Either way it is taxable income to her.

[waterskier]

Thank you for the reply.

Yes, as I mentioned it the beginning.  She lives with us and watched our children in the home we share together.

[macuser_22]

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@waterskier wrote:

Thank you for the reply.

Yes, as I mentioned it the beginning.  She lives with us and watched our children in the home we share together.

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You can look at it two ways.  Neither the IRS or anyone else would question it if you did not claim the childcare expenses and she did not claim the income and you just treated it as her sharing household chores and expenses and you just gave her gifts to appreciate it.  That is just a family sharing a home, chores and costs and there are no tax consequences.

If you want to claim a tax deduction for child care, which you can,  then she must claim the income as household employee income.

She would report it as:

Household Employee income under $2,100 should be reported in:

Miscellaneous Income
Other Income not reported on a W-2
Other wages (yes)
House Hold Employee.

OR Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "household employee income” which will take you to the same place.

In her case, since the $2,100 limit does not apply, she can enter any amount that she received.  That would put the income on line 1 on the 1040 form just as if it was W-2 wages with HSH next to it.