How should we report income/expense for child care provided by a friend?

[Daboa]

Like many during COVID, we found a new child care arrangement. We paid our friend over $19k last year for child care. Now we want to make sure we do the right thing on our taxes.

The first question is whether she was an employee or an independent contractor. We have thought of her as a contractor so far. Care was provided at her house

[Mike9241]

since the services were performed at her house she is an independent contractor.  to take credit, you need her SSN or EIN and need to file a 1099-NEC (a little late was due 1/31 with the IRS) and if she won't give it to you, you're out of luck for taking any deduction or credit.

https://www.irs.gov/pub/irs-pdf/fw9.pdf 

in the future you need to get form w-9 for independent contractors and if employed in your home, the probable need to file schedule H, payroll taxes and w-2.

[Daboa]

@Mike9241 , thanks for the answer. To clarify, the 1099-NEC was supposed to be filed by us, not her? I must admit, I have never heard of the 1099-NEC, but I googled it and I think I understand its purpose. What should we do if we were supposed to give her a 1099-NEC but missed the deadline? Is there anything special about how she will need to report the income on her end? I've heard of independent contractors paying quarterly installments and I'm not aware of her having paid those.

[Daboa]

@Mike9241 , would you happen to be available to answer the questions in my last reply. I appreciate it. Thank you!

[ErnieS0]

You are responsible for filing Form 1099-NEC and friend is responsible for reporting the income.

File as soon as possible. The penalty for late filing varies from $50 to $270 per form, depending on how long past the deadline the business issues the form. There is a $556,500 maximum in fines per year. 

Penalties for Missing the 1099-NEC or 1099-MISC Deadline

You can buy blank copies at an office supply store. There are many online services, including TurboTax Quick Employer Forms. 

Quick Employer Forms is only available to users of TurboTax Business or Home and Business for your desktop computer, or TurboTax Online Self Employed or TurboTax Live.

[Critter-3 · Accepted solution]

You do not need to issue any 1099 form at all since this was a personal expense and you are not a business with an EIN.   

All you need to do is enter their name, address and SS#  on the form 2441 (included in your tax return)  which serves the same purpose as the 1099 forms. 

FYI ... the form 2441 was originally put into service for just this very situation ... to catch all the "home day care providers"  that were not reporting the income on a tax return.    By giving a credit to the parents they got them to "report/turn in" the day care provider so the IRS will be looking to their tax return for the amount you paid  them (on the 2441)  to show up as income on their tax return.   It is just that simple ... don't even try to do any 1099 forms at all.  

[Daboa]

Can you provide an additional source for this or can someone back up these claims? While this sounds great, every other forum or article I've read said that a 1099 is required. After all, the 1099 is where the care provider would report the amount that we would claim on form 2441. 

[AliciaP1]

A 1099 is issued by an entity that paid out for non-employee services, rents, or other reportable payments.  You are not required to submit a 1099 to your care provider in this situation.

Most structured care facilities provide a statement to their customers to confirm how much was paid in the tax year and that is what is used to complete Form 2441.  If you do not have the total yourself, you should ask your provider to confirm the total amount you paid.

@Daboa

[Daboa]

Thanks, @AliciaP1 . This is so confusing because so many posts have mentioned that a non-corporation, non-employee childcare provider needs to be issued a 1099-MISC or 1099-NEC. However, now I'm seeing some results which agree with you, saying that a 1099 is not required for private person expenses paid to another individual. I guess I won't send a 1099 but I will make sure the amount on Form 2441 agrees with the amount the provider lists as income on her return.

[Critter-3]

You are an individual (not a business trying to deduct these payments on a business return )   paying for personal services so you are NOT required to issue a 1099 to the child care provider ... that is the job of the form 2441.

https://turbotax.intuit.com/tax-tips/irs-tax-forms/what-is-form-1099-nec/L5fbwIFSn

[Daboa]

Thanks. That link was helpful. It seemed to very clearly state that only a business needs to issue a 1099-NEC if it paid a nonemployee for services related to the company's trade or business (see below). I am not a business and paying for childcare is not related to my "trade." I feel confident now that I don't need to issue a 1099. 

your form should only report payments made as compensation related to the company’s trade or business

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Now I have a question on behalf of the care provider: How should the care provider report their income if not from a 1099? Without a 1099, I guess we have to coordinate and make sure the amount I put on Form 2441 matches their reported income.

[PattiF]

The income would be claimed as paid in cash.  

To report cash you would:

• Go to Business Income and Expenses, click Start
• Follow the prompts and enter information about your work
• You do not need or have an EIN
• You can use business code 999999
• You use the cash accounting method
• You have no employees 
• You did not make any 1099 payments

1. Enter Business Income in General Income
2. Enter Cash and Amount on the next screen

They can deduct any expenses such as supplies or mileage.