Yes. If she is the caregiver, you have to provide her name, address and SSN number and the amount you paid her on the Dependent Child Care Credit Form 2441 in order to claim the credit. If Grandma has a filing requirement, then yes, she would be expected to report the income on her tax return and pay any applicable tax. Depending on how you paid her and what her other income is what will determine if she has to file or owes any tax.
The Ins and Outs of the Child and Dependent Care Tax Credit
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If you hired a household employee to work in your home during 2021, you may be required to pay employment taxes, including Social Security, Medicare, and unemployment. This gets reported on Schedule H, Household Employment Taxes. You're required to file a Schedule H if you paid:
- Any one worker $2,300 or more during 2021
- Any one worker, regardless of payment amount, if you withheld income taxes for them
- Wages totaling $1,000 or more during any calendar quarter to all your household employees in the preceding two years (don’t count wages paid to your spouse, your child under age 21, or your parent)
You would issue her a W-2 in this situation.
If you hired her as a self-employed worker, then she is responsible for her own Social Security and Medicare taxes (the self-employment tax). A self-employed worker is someone who controls how the work is performed, and provides his or her own supplies and equipment. And note - anyone with over $400 in self-employment income has a filing requirement.
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