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Coilylecross
Level 2

Nanny tax step parent

My husband and I plan to give my step dad $180 a month to watch our kids. Since he's my step parent, would I have to pay any taxes?

11 Replies
WKins2
Expert Alumni

Nanny tax step parent

No, you would not have to pay any tax for giving your step-dad $180 a month to watch your kids. In fact, it can lower you taxes. 

 

You may be able to claim the child and dependent care credit if you paid expenses for the care of a qualifying individual to enable you (and your spouse, if filing a joint return) to work or actively look for work. If either one of you are not working and not looking for work, or if you file Married Filing Separately, you would not qualify for this credit.

 

The credit is 20% to 35% of child care expenses, depending on your adjusted gross income. The total expenses that you may use to calculate the credit may not be more than $3,000 (for one qualifying individual) or $6,000 (for two or more qualifying individuals). 

 

Keep in mind that you will have to report the name, address, and social security number of the care provider (your step dad) in order to claim the credit and he will be required to report the payments as income (whether or not you claim the credit). 

 

For more information on this tax credit, please see Publication 503

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Coilylecross
Level 2

Nanny tax step parent

I know that there is a tax exemption for paying nanny tax to a parent so in this case, is my step-dad considered my parent for tax purposes?

 

He is on disability and currently doesn't have to file taxes. Do I need to provide him with some kind of form in order to report the income? If he doesn't report the income, will that be tax evasion? 

WKins2
Expert Alumni

Nanny tax step parent

Your stepfather would only have to report the income if he had total taxable income above the standard deduction ($12,200 if single, $24,400 if married filing jointly with his spouse). If he is under the filing threshold, he does not need to file a tax return and you will still qualify for the credit. It is only tax evasion if he is required to file a tax return and does not report the income.

 

The tax exemption for paying nanny tax to a parent (the parent exemption) is an exemption from withholding and paying Social Security, Medicare, and Unemployment Insurance taxes on the wages. But IRS publications related to Household Employees (Nanny Tax) do not clearly define parent so you have to look to other ares of the tax law to determine if a step-parent qualifies as a parent for this purpose. Publication 501, related to dependents, lists a step-parent as a qualifying relative for claiming them as a dependent so it is likely that a step-parent will qualify as a parent for purposes of the Nanny Tax as well. 

 

But the first thing you need to look at is whether or not your stepdad qualifies as a Household Employee. If not, the exemption from withholding and paying Social Security, Medicare, and Unemployment Insurance taxes on the wages would not matter as there would be no "wages". 

 

To determine if your stepdad is a Household Employee, here is a portion of Publication 926 that would be helpful (see page 3): You have a household employee if you hired someone to do household work and that worker is your employee. The worker is your employee if you can control not only what work is done, but how it is done. If the worker is your employee, it doesn't matter whether the work is full time or part time or that you hired the worker through an agency or from a list provided by an agency or association. It also doesn't matter whether you pay the worker on an hourly, daily, or weekly basis, or by the job.

 

Example. You pay Betty Shore to babysit your child and do light housework 4 days a week in your home. Betty follows your specific instructions about household and child care duties. You provide the household equipment and supplies that Betty needs to do her work. Betty is your household employee.

 

It seems it would be relatively easy to not have your stepdad qualify as a Household employee. 

 

 

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AmeliesUncle
Level 13

Nanny tax step parent

However, be aware that your State MIGHT have other requirements.  For example, they might require State Unemployment, Worker's Compensation, Disability Insurance or other requirements.  There may be exceptions when the employee is a parent and/or a Household Employee, but that varies by State so you will want to research the rules in your State.

WKins2
Expert Alumni

Nanny tax step parent

Yes, if your stepdad does meet the requirements to be considered a household employee, as @AmeliesUncle said, you will also need to see if state rules are different than the IRS rules. But this can all be avoided if you can structure his work in a way that keeps him from being considered a household employee. 

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Hal_Al
Level 15

Nanny tax step parent

A step parent is the same as a parent, for tax purposes.

 

He does not need to report the income, unless you are claiming the dependent care credit (DCC) for the money you paid him.  Even then, he may not need to report it, if he baby sat in your home and he made less than $12,000 total income for the year, including the taxable portion of social security disability income (SSDI).  You do NOT need to provide him any form (W-2 or 1099-Misc). It is not tax evasion*.  If you are claiming the DCC, some people recommend that he file, even if not required, so your returns match up on the IRS computers.  

 

*If you are not claiming the DCC, you can treat the money as a gift and not wages.  Even if you treat it as pay, if he does not meet the filing threshold, he is not required to file

 

 

 

Coilylecross
Level 2

Nanny tax step parent

His work would definitely fall under house hold employee. If I decide to pay him more than $2200 in a calendar year (North Carolina labor laws require minimum wage of $7.25/hour to be paid) because he's my parent as defined by tax law, I still wouldn't pay nanny tax right?

Hal_Al
Level 15

Nanny tax step parent

That's correct. The $2200 limit is for people who are not your parent/step parent.  The parent exception (to the nanny tax) is for any amount.

Coilylecross
Level 2

Nanny tax step parent

Last question

I can't find the rules online for our state. I live in North Carolina. Would either of us need to pay any taxes to the state?

Hal_Al
Level 15

Nanny tax step parent

You would have no state tax obligation.  If the step parent's income exceed the NC filing threshold, he would have to file a  state return. See:

https://www.ncdor.gov/taxes-forms/individual-income-tax/individual-income-filing-requirements

https://www.ncdor.gov/taxes-forms/individual-income-tax/individual-income-filing-requirements#Filing

AmeliesUncle
Level 13

Nanny tax step parent

At first glance, it looks like Household Employees are not required to provide Worker's Compensation, but you may be required to pay State Unemployment and provide pay stubs.

 

https://www.care.com/homepay/resource-center/requirements-by-state/north-carolina

https://www.poppinspayroll.com/resources/northcarolina

 

Whether or not there are exceptions for a parent, I don't know.  You really should contact a professional in your area regarding this.

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