Child care expense question: We pay our Mother (child's grandmother) $850 a month to watch our baby. Can we count this as a childcare expense?

[shameka03]

We don't withhold taxes as she not considered a "nanny".  If we are allowed to deducted this amount which will be less than $11k, will she have to report the income?  She didn't work in 2014, so this was her only source of income.  We have cancelled checks as record of payment.

[Hal_Al · Accepted solution]

Yes. But, if you claim the dependent care credit, she will have to claim the money as income  and pay social security and medicare tax (15.3%), as well as income tax.

If she babysat in your home, instead of hers, she is classified as a household employee. Grandparents (parent of the taxpayer) are exempt from the "Nanny tax". That is, she will not have to pay social security and medicare tax. But the  income is still subject to some  income tax. 

[tgore3rd]

If I claim my parent for dependent care credit & she lives with us as a household employee, does the “nanny tax” still apply? Or is FICA still paid because she is claimed for dependent care credit?

[Hal_Al]

No. Grandparents (parent of the taxpayer) are exempt from the "Nanny tax".  Nanny tax is FICA. The fact that you are claiming the day care credit, based on what you pay her, does change the exemption.

[inder76]

Can anyone advise which form and line should be used to report income generated from the child care by the grandparent? pls. note there is no other income to report. thanks

[Hal_Al]

If she babysat in your home, instead of hers, she is classified as a household employee. The income is reported on line 1 of form 1040,  with the notation HSH to the left of line 1. To enter type> household employee income <in the find box of Turbotax.

If the grandparent babysits in her own home, she reports the income as self employment, on Schedule C, then line 12 of form 1040 (Schedule 1). Type> self employed income <in the find box.

[inder76]

Thanks for your answer. However, i can't find form 1040 in my turbotax online screen. Neither on the left panel where i see all other forms, nor can i find it using 'Find' option on the top right. Appreciate further insights! In addition, my CA (who filed my taxes) told me to add my mother (grandparent taking care of child) in line 130. thanks

[inder76]

Update - I found an option under "Spousal and Child Support Payments Received" to report the income. However, in tax summary it shows under line 128 and not under line 130. appreciate some guidance. thanks

[inder76]

Hi @Hal_Al ...Appreciate your inputs. thanks

[pedro51053]

Commonly when you are asked to list the care provider for you son/daughter it asks dor their SSN, address, info this is to in some cases connect the dot between what you payed her in the year and what she claims. But usually it only comes in to effect when you try to claim a large amount of child care expenses say $10K+  per year. It could benefit you to add this but could also trouble you if not done correctly.

[sanchez86]

(Unable to delete comment)

[M3gatr0n8]

I also have the same question but with additional nuances.  My girlfriend and I have a baby and we are paying her mother monthly for helping us take care of the child (she also lives with us for this reason).  I will be claiming the child tax credit for him since i will be itemizing my returns but i wont be taking the dependent care credit (since I dont want to pay social security or Medicare taxes hopefully).  Will I be able to consider her as a family member (grandmother of my child) since shes my girlfriends mother, or will she be considered an independent contractor?  

I am also wondering if I can put money into a flexible spending account with my employer to pay her with pretax.  A family member being paid for childcare should qualify as a childcare related expense right?  (Especially if she has to still file income taxes regardless of if I qualify for the nanny tax exemption or not).  

[Hal_Al]

@M3gatr0n8 

Q. Will I be able to consider her as a family member (grandmother of my child) since shes my girlfriends mother, or will she be considered an independent contractor?  

A.  She is not a family member because she is not related to the taxpayer (you), even though she is related to the child.  Someone will have to pay her social security or Medicare (FICA) taxes. If you and she agree to do so,  she can be considered an independent contractor and pay her own FICA, in the form of self employment tax.

Q. I am also wondering if I can put money into a flexible spending account  (FSA) with my employer to pay her with pretax?

A. Yes.  whether your childcare provider is a  family member, or not, is not relevant. She has to still file income taxes regardless of if you qualify for the nanny tax exemption or not (you don't) or whether you pay with FSA funds or not.  

[Berl]

I have a similar question. My mum babysits my daughter & i pay her $150 weekly.my mum is above 65 yrs & this is her only source of income. I will not be using her as a dependent on my taxes. So my question is will I still be elegible for the child tax credit & FSA Depedent?

[Critter]

Read the earlier posts in this thread ... your question was already answered.