If you pay a parent to watch your children do you have to 1099 your parent?

[cbusa]

If a taxpayer pays their parent to watch taxpayers children (dependents) does taxpayer have to issue a 1099 to their parents/ chidlrens grandparents?

[Bsch4477]

Depends on whether she cares for the child in her home or yours. See the discussion here. 

https://ttlc.intuit.com/community/tax-credits-deductions/discussion/child-care-expense-question-we-p...

[macuser_22]

Only businesses issue 1099-NEC in the course of doing business - individuals do not.

[GeorgeDenseff]

If you are going to claim the money you pay her for the child and dependent care credit, then you need to issue her a W-2.  If you pay more than $2,300 per year, then you have to pay her share of social security and medicare taxes.  Your mother's name and SS number will be on the 2441 so those wages need to be accounted for.

[macuser_22]

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@GeorgeDenseff wrote:

If you are going to claim the money you pay her for the child and dependent care credit, then you need to issue her a W-2.  If you pay more than $2,300 per year, then you have to pay her share of social security and medicare taxes.  Your mother's name and SS number will be on the 2441 so those wages need to be accounted for.

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That is not correct.    As Bsch4477 said, it depends if the child care took place in the child's home (household employee which is a W-2 employee unless a parent) or in the sitters home which is self-employed income.

The W-2 is only required if employment tax is paid and you do not pay employment tax when the sitter is a grandparent.

See IRS Pub 926 for W-2 requirements and parent exception.

https://www.irs.gov/pub/irs-pdf/p926.pdf

Taking the childcare deduction is not dependent on issuing any form to the sitter.  However, the sitters name, address and SSN (or EIN) must be entered on the tax return to claim the credit so the IRS can check that the sitter called the income if you deduct it.    

[Opus 17]

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@GeorgeDenseff wrote:

If you are going to claim the money you pay her for the child and dependent care credit, then you need to issue her a W-2.  If you pay more than $2,300 per year, then you have to pay her share of social security and medicare taxes.  Your mother's name and SS number will be on the 2441 so those wages need to be accounted for.

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Also no, because if the household employee is the taxpayer's parent, the taxpayer is not required to withhold or pay household employee tax.

https://www.irs.gov/taxtopics/tc756

[Opus 17]

A person would never issue a 1099.  1099s are only issued by businesses in the course of doing business.

I already answered on your other post.  Here it is again.

If the caregiver works in your home, they are your household employee.  You are required to collect and pay the nanny tax unless an exemption applies.  You are exempt from paying the household employee tax (nanny tax) if the employee is your parent.  You are not required to withhold federal and state income tax, but you may if you want to.  You must issue the employee a W-2 at the end of the year if wages paid are more than $2300.  There are several web sites that will issue an electronic W-2 to the employee and e-file the required W-2 and W-3 copies to the IRS and social security administration for a small fee, usually around $5.  

You would never issue a 1099-MISC or 1099-NEC.  If the caregiver is working in their home, they are an independent contractor and are responsible for their own taxes.  Only businesses have to issue 1099s, private individuals do not.  If they are working in your home they are a household employee and you must issue a W-2 if you pay more than $2300 over the year.  If you pay less than $2300, you do not need to issue a W-2, but the employee must still report their income.  

https://www.irs.gov/taxtopics/tc756

[cbusa]

Thanks so  if your parent is watching your child (their grandchildren) at your home not the grandparents home, you would issue your parent a W-2 for amounts you paid your parents (your kids grandparents) to watch your kids you do not need to withhold FICA tax since they are not subject to the nanny tax? Would you have to withhold FUTA or SUTA? Can the W-2s be issued through TurboTax and how would you do this?

[Opus 17]

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@cbusa wrote:

Thanks so  if your parent is watching your child (their grandchildren) at your home not the grandparents home, you would issue your parent a W-2 for amounts you paid your parents (your kids grandparents) to watch your kids you do not need to withhold FICA tax since they are not subject to the nanny tax? Would you have to withhold FUTA or SUTA? Can the W-2s be issued through TurboTax and how would you do this?

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You can't issue a W-2 to 2 people.  You would either have to pick one grandparent to be the employee, or split the wages and issue two W-2s.  You would report the wages in box 1 but box 3 and 5 (income subject to FICA and medicare) would be blank or zero, and boxes 2, 4 and 6 would be blank or zero (unless you withheld state or federal taxes, which would be complicated so you probably won't do that.). Household employees are not subject to FUTA if they are your parent.  You would have to check your own state to know your requirements under your state laws.

https://www.irs.gov/publications/p926

Turbotax Self-employed version can prepare a W-2 (part of the employer quick forms module, I believe) but if you are only issuing one or two W-2s, the up-charge to that most expensive version will be much more than finding an online e-file site that can do W-2s for $5-$7 each, 

[macuser_22]

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@cbusa wrote:

Thanks so  if your parent is watching your child (their grandchildren) at your home not the grandparents home, you would issue your parent a W-2 for amounts you paid your parents (your kids grandparents) to watch your kids you do not need to withhold FICA tax since they are not subject to the nanny tax? Would you have to withhold FUTA or SUTA? Can the W-2s be issued through TurboTax and how would you do this?

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No.  You do not issue your parents a W-2 at all - that it only required for a non-parent (grandparent) and only if FICA tax was withheld.   Review Pub 926 that I linked above.  

[Opus 17 · Accepted solution]

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@macuser_22 wrote:

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@cbusa wrote:

Thanks so  if your parent is watching your child (their grandchildren) at your home not the grandparents home, you would issue your parent a W-2 for amounts you paid your parents (your kids grandparents) to watch your kids you do not need to withhold FICA tax since they are not subject to the nanny tax? Would you have to withhold FUTA or SUTA? Can the W-2s be issued through TurboTax and how would you do this?

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No.  You do not issue your parents a W-2 at all - that it only required for a non-parent (grandparent) and only if FICA tax was withheld.   Review Pub 926 that I linked above.  

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This is correct, my mistake.  If you are not required to withhold social security tax or pay FUTA (because they are your parent), you are not required to issue a W-2.  You may choose to do so, however.  In addition to e-filing online with various companies, you can e-file a W-2 for free at the social security web site.

Be aware that if you don't issue a W-2, you still need to use your parent (or parents') SSNs to claim the child and dependent credit, and the IRS will be looking for household employee income on your parent's tax return.  If you don't issue a W-2, they will report the household employee income voluntarily by adding it to their form 1040 income with "HSH" as a notation. Turbotax can do this automatically, household employee income is listed under "other types of income". 

[GeorgeDenseff]

If you want to claim the Tax and Dependent Care Credit using that money.  You can agree to not issue a W-2 and not claim the credit when it is your parent.

[Opus 17]

@GeorgeDenseff 

I don’t understand this answer. The taxpayer is not required to issue a W-2 in order to claim the child and dependent care credit. If the taxpayer claims the credit, the IRS will look for matching income on the parents tax return. If the parents don’t have a W-2, but they do have income marked “HSH“, that will satisfy the IRS.  While I agree that the taxpayer does not have to report babysitting by the grandparents as wages (and would not claim the credit), that does not seem to be the thrust of the question.

[macuser_22]

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@GeorgeDenseff wrote:

If you want to claim the Tax and Dependent Care Credit using that money.  You can agree to not issue a W-2 and not claim the credit when it is your parent.

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That is not correct.  Issuing a W-2 has nothing to do with claiming the credit.   no W-2 is  necessary to claim the credit.

[GeorgeDenseff]

If you put your parent's social security number on  the form, then  the parent needs to be able to show that they were paid the money that you are claiming and that they paid tax on that income.