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dpatel1788-gmail
Level 1

My parents are living with us and we are paying them to take care of our baby. We are paying them $1k a month. Can we claim then as dependent and the child care credit?

 
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Opus 17
Level 15

My parents are living with us and we are paying them to take care of our baby. We are paying them $1k a month. Can we claim then as dependent and the child care credit?

Someone living in your home and being paid to work for you is a household employee. If you pay the household employee more than about $2000, you must issue them a W-2. You are not required to withhold income tax, and you are not required to pay household employers tax if the household employee is a parent. But you do need to issue a W-2. There are several online companies that will allow you to e-file a W-2 with both the employee and the IRS for a small filing fee.  You will also have to decide whether you are paying one parent $12,000, or both parents $6000 each, for purposes of issuing the W-2.

 

At that level of income, your parents are not eligible to be claimed by you as tax dependents.**


** Note that if you paid one parent $12,000 and the other parent nothing, and if your parents filed separate tax returns, you could claim the nonworking parent as a dependent.  This would get you a $500 tax credit. In some cases, a married couple can be at a disadvantage by filing separately instead of jointly, and someone would have to review their situation to understand whether there is a negative impact if you were to take the strategy.

 

 

However, you can use the wages that you pay to your parents for child care to qualify for the child and dependent tax credit, as long as care is provided so that you, and your spouse if married, can work or go to school full time.  

If you don’t issue a W-2, there is a way for your parents to report the income on their tax returns anyway. However, it would be better all around if you paid the extra $10 or so to issue the W-2.

 

You are likely correct that your parents will not actually owe income tax, assuming they have no other taxable income.  Remember that once a person is a US taxpayer (citizen or green card holder), they are required to report and pay taxes on all their worldwide income, so if your parent‘s have income from another country, that will be taxable in the US.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

View solution in original post

6 Replies
NCperson
Level 15

My parents are living with us and we are paying them to take care of our baby. We are paying them $1k a month. Can we claim then as dependent and the child care credit?

@dpatel1788-gmail - your parents can not be your dependent if their income exceeds $4300 (excluding social security).  if you pay them $1,000 per month, they are making more than $4300 for the year, so they can't be your dependents. 

VolvoGirl
Level 15

My parents are living with us and we are paying them to take care of our baby. We are paying them $1k a month. Can we claim then as dependent and the child care credit?

And FYI - you can't get the Child Care Credit for paying someone that is a dependent on your return.  

pk
Level 13
Level 13

My parents are living with us and we are paying them to take care of our baby. We are paying them $1k a month. Can we claim then as dependent and the child care credit?

@dpatel1788-gmail , having read the responses from my colleagues, @VolvoGirl , @NCperson  whom I agree with, just wondering if you meant  " child and dependent care' and not claiming your parents  as dependent ( the exemption being currently zero ).  If so you are trying to pay someone to look after your child/children-- they will have to declare that earning and be taxed on it.  Furthermore, the  "caretaker" must be authorized to work -- I am assuming that your  parents are just visiting you  and not Green Card holder .  IMHO  

dpatel1788-gmail
Level 1

My parents are living with us and we are paying them to take care of our baby. We are paying them $1k a month. Can we claim then as dependent and the child care credit?

Thank you!

dpatel1788-gmail
Level 1

My parents are living with us and we are paying them to take care of our baby. We are paying them $1k a month. Can we claim then as dependent and the child care credit?

I was talking about the option of claiming my parents as dependents. It seems that since they earn more than the threshold, I would not be able to do that. They are green card holders so I will be notifying IRS about the payments (not really sure how I do this). They probably will not have to file taxes since they will earn less than the standard deduction. 

Opus 17
Level 15

My parents are living with us and we are paying them to take care of our baby. We are paying them $1k a month. Can we claim then as dependent and the child care credit?

Someone living in your home and being paid to work for you is a household employee. If you pay the household employee more than about $2000, you must issue them a W-2. You are not required to withhold income tax, and you are not required to pay household employers tax if the household employee is a parent. But you do need to issue a W-2. There are several online companies that will allow you to e-file a W-2 with both the employee and the IRS for a small filing fee.  You will also have to decide whether you are paying one parent $12,000, or both parents $6000 each, for purposes of issuing the W-2.

 

At that level of income, your parents are not eligible to be claimed by you as tax dependents.**


** Note that if you paid one parent $12,000 and the other parent nothing, and if your parents filed separate tax returns, you could claim the nonworking parent as a dependent.  This would get you a $500 tax credit. In some cases, a married couple can be at a disadvantage by filing separately instead of jointly, and someone would have to review their situation to understand whether there is a negative impact if you were to take the strategy.

 

 

However, you can use the wages that you pay to your parents for child care to qualify for the child and dependent tax credit, as long as care is provided so that you, and your spouse if married, can work or go to school full time.  

If you don’t issue a W-2, there is a way for your parents to report the income on their tax returns anyway. However, it would be better all around if you paid the extra $10 or so to issue the W-2.

 

You are likely correct that your parents will not actually owe income tax, assuming they have no other taxable income.  Remember that once a person is a US taxpayer (citizen or green card holder), they are required to report and pay taxes on all their worldwide income, so if your parent‘s have income from another country, that will be taxable in the US.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
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