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Paying grandparents regulary for taking care of kids - tax implications, paperwork

Hi, we are having grandparents looking after two kids both under 18. Me and the spouse have full time jobs, but living separately due to job conditions. Grandparents are living with us. We are paying grandparents  on a monthly basis. Grandparents are new green card holder and both over 65. Our first priority is they could claim social security and medicare while they report income tax to IRS, so they could earn points. We wish we could keeping things simple and legal.

 

Can someone please suggest for  both parties (us and the grandparents) for what type of tax documents should we claim (self employed 1099 or  W-2), withholding (FICA & income tax), or any other considerations?

 

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5 Replies

Paying grandparents regulary for taking care of kids - tax implications, paperwork

To achieve the results you want you could file a Sch H with your return  or  put them on the "payroll" ...

 

https://www.irs.gov/forms-pubs/about-schedule-h-form-1040

Paying grandparents regulary for taking care of kids - tax implications, paperwork

Be aware that you cannot get the childcare credit if you are claiming your parents as dependents.

**Disclaimer: Every effort has been made to offer the most correct information possible. The poster disclaims any legal responsibility for the accuracy of the information that is contained in this post.**
TomD8
Level 15

Paying grandparents regulary for taking care of kids - tax implications, paperwork

 

@booklihb wrote:  "Our first priority is they could claim social security and medicare while they report income tax to IRS, so they could earn points."

 

Sorry.  This IRS forbids this, except under very specific circumstances. 

 

From page 6 of IRS Publication 926:

 

Wages not counted.

Don't count wages you pay to any of the following individuals as social security or Medicare wages, even if these wages are $2,300 or more during the year.
1. Your spouse.
2. Your child who is under the age of 21.
3. Your parent. Exception: Count these wages if both the following conditions apply.
a. Your parent cares for your child (including an adopted child or stepchild) who is either of the following.
i. Under the age of 18.
ii. Has a physical or mental condition that requires the personal care of an adult for at least 4 continuous weeks in the calendar quarter services were performed.
b. Your marital status is one of the following.
i. You’re divorced and haven't remarried.
ii. You’re a widow or widower.
iii. You’re living with a spouse whose physical or mental condition prevents him or her from caring for your child for at least 4 continuous weeks in the calendar quarter services were performed.

2021 Publication 926 (irs.gov)

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

Paying grandparents regulary for taking care of kids - tax implications, paperwork

Thank you so much for your help. Consider me and my spouse are living in two cities and only able to meet on weekend, will this count for the scenario of part b,  iii ? 

 

 

TomD8
Level 15

Paying grandparents regulary for taking care of kids - tax implications, paperwork

Not unless your spouse has a "physical or mental condition prevents him or her from caring for your child for at least 4 continuous weeks in the calendar quarter services were performed."

 

The mere fact of living apart except for weekends doesn't constitute a "physical or mental condition."  The IRS is talking about conditions in the medical realm, not about living situations..

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