Hi, I am seeking expert advice here. Thank you!
I am a single mother, and my parents live with me. My son is under 12. I use my FSA money to pay my parents to take care of my son while I am at work. The total amount paid to my parents will be $3600 in 2021 ($1800 for each person). My questions are:
1. Do I need to pay FICA tax for them?
2. Do they need to pay FICA tax?
3. How should they report this income on their tax form?
Thanks a lot for your help!
They are not subject to FICA tax, because the amount is less than $2200 (each). They most likely also qualify under the grandparent exception, but that depends on your marital status.
They should report it as household employee income, which makes it earned income.
In TurboTax, enter at:
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 and enter the amount under Household Employee Wages.
TurboTax will put the income on line 1 of form 1040 with the notation "HSH". This income is earned income and would qualify for the Earned Income Credit (if they're under 65) and for making an IRA contribution.
Q. Do I have to provide 1099 or W2 forms to them?
A. No. You should pay by check, just in case you have to prove payment to the IRS or your FSA administrator.
"I am divorced".
It doesn't matter in your parent's case, since they were paid less than $2200. But, for others reading this, There is an exception to a grandparent being exempt form the nanny tax: you (the child's parent) "should count wages to your parent if both of the following apply:
(a) your child lives with you and is either under age 18 or has a physical or mental condition that requires the personal care of an adult for at least four continuous weeks in a calendar quarter
(b) you are divorced and have not remarried, or you are a widow or widower, or you are married to and living with a person whose physical or mental condition prevents him or her from caring for your child for at least 4 continuous weeks in a calendar quarter."
One more question:
If I am going to pay total cash wages of $1,000 or more in any calendar quarter of 2021 to my parents, do I need to pay federal unemployment tax or do my parents need to pay federal unemployment tax?