Can I receive Child Care Credit for my mom in law's travel expenses /tickets, food, etc/. She helped me with my newborn for 2 months. She is not US resident/citizen.

[AnnetteB · Accepted solution]

No, travel expenses/food for a caregiver are not qualified expenses for the Child and Dependent Care Credit.

[serhatyal]

But I think you can pay your mom for childcare and she can pay for the plane ticket herself. You can get a refund from DCFSA for the payment you made to your mother-in-law.

If your mother earns over $400, she must file that income on a tax return (self-employed). If you pay her the exact amount of her flight ticket, she will have no earnings and will not have to file a tax return.

This is my understanding based on what I've read on the IRS website, but I'm no expert and this needs to be verified by a tax professional.

[xmasbaby0]

@serhatyal The mother cannot use the plane fare as a business expense since it is "commuting"; commuting to and from work is not deductible, even on a Schedule C----and even if she flew to take care of a grandchild and was paid for it, that was a "commute" to work.   And...this is a very old thread---the last time someone posted was in 2019 or maybe even earlier.

[serhatyal]

Since I also have questions on the same subject, I found this thread while searching and replied.

I see, what you say makes sense. In this case, in order for the mom not to have any earnings, she must have work-related costs. For example, if she pays for toys, and grocery shopping (for child) while she is taking care of the child, there might be no net earnings.

This will not solve the flight ticket problem, but at least his son can submit the payment to his mother in DCFSA. Did I understand correctly?

[xmasbaby0]

Instead of relying on a very old thread that is only "similar" to your issue----please explain your situation so we can reply and give you correct information.  For example, the original poster to this old question was flying Grandma from somewhere, and Grandma was not a U.S. citizen.  We do not know if Grandma has an ITIN, or where she is flying from.  We do not know if Grandma is taking care of the grandchild in the OP's home.   

If you have a grandparent caring for your child, it matters whether the care is happening in your own home or Grandma's home.   And it matters whether you are trying to claim Grandma as your dependent.

[serhatyal]

Of course, let me share my situation, and maybe you can help.

In my case, grandma flew from Turkey to take care of my child at my home. She stayed with us. She is neither a US resident nor a US citizen. She stayed in the US for less than 180 days and is a nonresident alien. She has no SSN or ITIN.

I paid her for her childcare services (with a receipt) so she could afford her plane ticket. I had this amount reimbursed from DCFSA. 

However, I later realized that my mother would be considered self-employed and would have to file a tax return if her net earnings exceeded 400 USD. Since my mother is not a US resident, she returned to her home country, but she plans to come back next year to look after your child.

To avoid my mother having to file a tax return, she must have costs that can offset her income. She made expenses for my child, such as grocery shopping, toys, and other items. However, we don't have the receipts or documentation to support these expenses. Since it's still the same calendar year, she can still make more expenses, but I'm not sure if they will count.

My goal was to prevent my mother from having to file a tax return (and get an ITIN, which would be a huge hassle for her) because she wasn't looking to make a profit, and I only paid her to help with her costly flight ticket from Europe.

And I guess whether or not she files a tax return, I'll have to put her ITIN on my tax return since I'm using DCFSA.

Worst case, I will return the money I received from DCFSA reimbursement to DCFSA account, and find other ways to use this money.  

Thanks in advance!

[xmasbaby0]

There may be other opinions, but I think any attempt to get the childcare credit will fail, since your childcare provider has no ITIN or SSN.    And you will simply --sorry--end up paying tax on the money you set aside in the FSA account since you cannot enter the childcare credit on a tax return.   This sounds more like family members who are helping each other and not like something that belongs on a tax return.   

@Critter-3   @Opus 17     @rjs  ????

[Opus 17]

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@serhatyal wrote:

Of course, let me share my situation, and maybe you can help.

To claim the credit, you must provide information about the provider, and they may be expected to file a tax return.  If the care was provided in your home, they are your household employee and you must issue them a W-2 if the amount is more than $2200.  You do not need to withhold or pay household employees tax (social security) when the employee is your parent or grandparent, but you must still issue the W-2.  When you employ a non-resident without a tax number, you are required to withhold income taxes, that they only get back if they file a tax return and claim a refund.  I believe this is form 1042-S but I am not an expert in this area.  To claim the credit for someone who does not have a tax number, you can file by mail and attach a written explanation of the situation, that includes the name, address and other identifying information for the provider.  The IRS will review the statement and may or may not award the credit.  (This is usually used when the provider is a US person who refuses to give their SSN.  I don't know if this would work in your situation, where you employed a non-eligible worker and failed to give them a W-2 or make the proper mandatory withholding for a non-resident.)

Your grandmother might be a resident or non-resident depending on how long they were in the US (use the substantial presence test).  If a resident, she is required to file a US tax return that reports and pays income tax on all her world-wide income.  If a non-resident, she is required to file a non-resident return (form 1040-NR) that only reports and pays tax on US source income.  She would apply for a an ITIN as part of that process.  Additionally, if she is thinking of being a legal immigrant (and not just a visitor), one of the questions will be "did you pay all US taxes you might have owed".

Overall, I think you just need to consider that your grandmother visited to help with child care and you helped with her travel expenses.  She was not an employee and you are not allowed to claim the credit. 

You don't have to return the money to the DCFSA account, but since you have a reimbursement but won't have qualified care expenses to report, the reimbursements are added back to your taxable income.  But there is no additional penalty in this situation.  Turbotax will handle this automatically. 

[serhatyal]

Thanks for your comments, but I think there are a few points that need clarification for completeness.

According to Publication 926, parents are not considered household employees except in special cases and W2 is not required.

Again, according to the IRS, I can pay my parents for child care. It can only be an opinion that it counts as family support but does not qualify for the DCFSA. According to the IRS, this is possible and legit.

In this case, my mother can make a tax return by getting an ITIN, I agree. What if my mother's expenses for childcare are more than her income, and her total earnings are less than 400 USD?

The IRS does not issue ITINs without tax returns for NRAs. In this case, I understand that a tax return must be made to obtain an ITIN, even if net earnings are below 400 USD. And my mom has to do this in January so that we get the ITIN before my tax return in April.

My question is; can expenses be incurred in October 2023 for earnings in May 2023? As a self-employed person, can she deduct October 2023 expenses from her May earnings? And again, can she deduct the costs she incurred in May 2023 (but whose documents we have not kept) from her earnings?

Thanks!

[Opus 17]

@serhatyal 

Regarding wages paid to your parent:

Your parent is still a household employee, not self-employed, if the care was provided in your home according to your directions.  If you do not issue a W-2 (because you did not withhold tax and they are not subject to social security and medicare withholding) they are still required to file a tax return.  When they file, they put their wages on line 1 of form 1040 with the notation "HHS" next to the amount.  This is true whether they are residents or non-residents.  

As a resident, they would be entitled to a standard deduction (in most cases) and if this was their only taxable income, they would not owe tax (in most cases).  The rules for non-residents are different.  If your mother reported household employee wages on a 1040-NR, she might or might not owe taxes.  I don't know the rules for form 1040-NR.  The filing threshold is not $400 (that is for self-employed) but I don't know what it is.   Again, if she is thinking of immigrating instead of visiting, one of the questions is, did you pay taxes that you owed?  While your grandmother might be able to get away with not filing a tax return for the household employee wages, the risk and consequences would be up to her to evaluate. 

Regarding you claiming the credit:

Yes, a parent or grandparent is an eligible caregiver.  However, you are required to obtain the caregiver's tax number.  If you want to claim the credit without the caregiver's tax number, you can't e-file.  You must file by mail and attach a written explanation.  At that point, the IRS has the discretion whether or not to allow the credit.  Remember that under the US tax law, all deductions and credits are "matters of legislative grace" and the IRS does not have to award any deduction or credit that you can't prove.

If you choose to treat the payment as wages, you will have to file by mail, attach a  written explanation, and see if the IRS accepts it.

See these instructions for form 2441

Complete columns (a) through (e) for each person or organization that provided the care. You can use Form W-10, Dependent Care Provider's Identification and Certification, or any other source listed in its instructions to get the information from the care provider. If you don't give correct or complete information, your credit (and exclusion, if applicable) may be disallowed unless you can show you used due diligence in trying to get the required information.

Due Diligence

You can show a serious and earnest effort (due diligence) by getting and keeping the provider’s completed Form W-10 or one of the other sources of information listed in the instructions for Form W-10. If the provider doesn't give you the information, complete the entries you can on line 1. For example, enter the provider's name and address. Enter “See Attached Statement” in the columns for which you don't have the information. Then, attach a statement to your return explaining that the provider didn't give you the information you requested.

[serhatyal]

@Opus 17  Thank you for your message. After considering it further, I decided not to use DCFSA for the payment I made to my mother due to potential complications.

I have several other expenses such as pre-k, summer school, and after-school programs that exceed our limit (married) of $5000. However, I have already reimbursed the $1500 payment I made to my mother through WageWorks. Now, I have two options:

1. Return the money to WageWorks by sending a cheque and then claim $5000 with the pre-k invoice.
2. Keep the money and claim the remaining amount of $3500 with the pre-k invoice.

Option 2 is easier, but there will be a discrepancy between my tax return (pre-k invoice) and WageWorks records. This could be a problem if WageWorks shares this information with the IRS. I don't want to create any problems for my mother.

What will be your guidance? Thank you

[Opus 17]

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@serhatyal wrote:

@Opus 17  Thank you for your message. After considering it further, I decided not to use DCFSA for the payment I made to my mother due to potential complications.

I have several other expenses such as pre-k, summer school, and after-school programs that exceed our limit (married) of $5000. However, I have already reimbursed the $1500 payment I made to my mother through WageWorks. Now, I have two options:

1. Return the money to WageWorks by sending a cheque and then claim $5000 with the pre-k invoice.
2. Keep the money and claim the remaining amount of $3500 with the pre-k invoice.

Option 2 is easier, but there will be a discrepancy between my tax return (pre-k invoice) and WageWorks records. This could be a problem if WageWorks shares this information with the IRS. I don't want to create any problems for my mother.

What will be your guidance? Thank you

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First:

Pre-K is allowable if one of the reasons the child attends is so you and your spouse can work.  The fact that the program is also educational does not disqualify it.

At Kindergarten and above, school costs are not allowable as day care.  You are allowed to include the extra cost of before and after school care, if you pay extra to keep your child while you are at work, and as long as the costs are separately itemized.  (Up to age 13.  At age 13 and above, care costs don't qualify for the credit unless the child is disabled and unable to care for themselves, even if you feel extra supervision is still needed.)

Summer day camp is allowable if one of the reasons for attendance is to provide care so you can work.  However, overnight camp is not allowable.

Now, as far as the plan administrator is concerned.  To the best of my knowledge, the plan administrator does not give the IRS the name of the person or company being reimbursed.  That is only reported on your form 2441.  If you file a tax return and list $5000 of qualifying expenses to other providers (summer camp, pre-k, etc.) and you have $5000 of reimbursements, that should settle out ok, even if the reimbursement request you filed with the plan names a different person than the person who ultimately got paid.