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brittanynicole_8
New Member

Paying my sister for childcare

We're going to hire my sister as a nanny for our kids. We want to be able to claim the childcare tax credit, so I'm assuming in order to do that we have to pay certain taxes, and she has to pay certain taxes...just like any other nanny. But I've seen several things that say you DON'T have to pay employment taxes if it's your immediate family. Do we have to pay and withhold employment taxes? Can we claim what we paid her for the childcare tax credit?
1 Best answer

Accepted Solutions
SweetieJean
Level 15

Paying my sister for childcare

You do not withhold or pay social security and Medicare taxes from wages you pay to:

  1. Your spouse,
  2. Your child who is under age 21,
  3. Your parent, unless an exception is met, or
  4. An employee who is under age 18 at any time during the year, unless performing household work is the employee's principal occupation. If the employee is a student, providing household work is not considered to be his or her principal occupation.

Since sister is not listed as an exception, you must withhold Soc Sec and Medicare.

https://www.irs.gov/taxtopics/tc756.html

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5 Replies
SweetieJean
Level 15

Paying my sister for childcare

You do not withhold or pay social security and Medicare taxes from wages you pay to:

  1. Your spouse,
  2. Your child who is under age 21,
  3. Your parent, unless an exception is met, or
  4. An employee who is under age 18 at any time during the year, unless performing household work is the employee's principal occupation. If the employee is a student, providing household work is not considered to be his or her principal occupation.

Since sister is not listed as an exception, you must withhold Soc Sec and Medicare.

https://www.irs.gov/taxtopics/tc756.html

Hal_Al
Level 15

Paying my sister for childcare

Yes, you can claim the dependent care credit based on what you pay her
Hal_Al
Level 15

Paying my sister for childcare

If she provides child care in your home she is a household employee, and you must file schedule H as part of your tax return to pay her employment taxes.
If she provides child care in her home, she is a self employed care provider and will pay her own social security and medicare tax.
brittanynicole_8
New Member

Paying my sister for childcare

Do I have to pay our half of the social security and medicare taxes quarterly? Or at the end of the year when we file taxes?
Hal_Al
Level 15

Paying my sister for childcare

End of year; on schedule H and line 60a on form 1040.
But, it's part of your total tax bill and could cause you to owe an underpayment penalty if there is a significant short fall
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