Nanny tax for parent

[Questionss]

Hello, I needed to get some clarification on the nanny tax rules while paying a parent living in the same household. 

My mother stays with my wife and I in the same household and helps with taking care of our 2 children who are under 8 years of age. I do not claim my mother to be a dependent on my tax returns. My mother does not have any other source of income. 

 If I pay my mother to help take care of our children - my understanding is that I can just write her a check every week and it will not be subject to tax withholding on my end. 

I am not required to generate a W-2 or a 1099 etc to report the payment made to my mother. 

I will also be able to claim dependent care credit on my tax returns for this transaction. 

My mother will have to file her own tax return where she will report this earned income on her tax return. 

Is my understanding of this scenario accurate? Is there something I need to pay attention to - to ensure compliance with all laws and regulations?

Would appreciate some insight and clarification in this regard. 

[Bsch4477]

Issue a W-2 but don’t include payroll taxes. You can claim child care credit if both you and your wife work.  She reports the income on her return. 

[Opus 17]

You are correct in general, although there is a weird exception in the law.

If your parent is your household employee, you are not required to withhold or pay taxes unless:

1. they are providing care for your minor child or adult disabled child,

AND

2. your marital status is either divorced and not remarried; or widow/widower; or your spouse is disabled and unable to care for themself.

In other words, a parent who is single and never married, or parents who are married, can pay their parent for child care and it is NOT subject to household employee tax, but parents who are divorced or widowed and not remarried ARE subject to household employee tax.  I don't know why the law is written this way.

https://www.irs.gov/publications/p926#en_US_2024_publink100086740

Assuming that you are in a situation where your parent is not subject to household employee tax (or social security and medicare withholding), you have the option of issuing them a W-2 with the wages in box 1 and boxes 2-6 blank.  But a W-2 is not required.  If you don't issue a W-2, they report household employee wages not on a w-2, using line 1b of form 1040. 

[Questionss]

Yes my wife and I are married so we wanted to make sure it would be ok to not issue a W-2 to the parent.  Wanted to avoid that layer of complexity ( even though it might be simple enough) if not required.  I will try and ensure my parent correctly reports the income on form 1040 as you advised.  Thank you 

[Hal_Al]

The parent reports the income on line 1b of form 1040 ("Household employee wages not reported on Form(s) W-2").  Because of the parent exception, the income is not subject to social security and Medicare tax (FICA).

In TurboTax, enter at:

 Federal Taxes

Click on Wages and Income

Scroll down to Less Common Income

On Miscellaneous Income, 1099-A, 1099-C click the start button

On the next screen click the start button on Other Income not already reported on Form W-2 or Form 1099

Answer Yes on the next screen. On the net screen, enter your income as Household Employee Wages (ignore the $2700 limit, it doesn’t apply to grandparents) and continue the interview until it completes.

[Questionss]

Thank you @Hal_Al . These detailed steps will help in ensuring proper steps are followed at tax filing time. 

[NCperson]

Issue a W-2 but don’t include payroll taxes. You can claim child dependent care tax credit if both you and your wife work.  She reports the income on her return.