Does my friend or relative count as a care provider?

[johnnyw22]

In 2020 Turbotax Premier, in the Child and Dependent Care Credit section, it states the following:

Does my friend or relative count as a care provider?

Yes, your friend or relative counts as a care provider as long as they are operating a business. This business must either be operating using an Employer Identification Number (EIN) or be using the Social Security Number (SSN) of the business owner.

This business must be declared on that person's own tax return as a Schedule C, or the business has its own tax return. The only businesses operating without an EIN or SSN are tax-exempt organizations or foreign companies.

Otherwise, the services of a friend or relative or part-time babysitter (for example) won't count for this credit.

However, I am not seeing this in the IRS publications on Form 2441 that states that the relative providing the child care must be operating as a business in order for me to claim this credit.  Can someone point me to this information from the IRS site?  Thanks

[xmasbaby0]

If you are paying someone to take care of your child so that you can work, you can use the childcare credit on your tax return.  You need to enter either the Social Security number or Tax ID of the the childcare provider.  The childcare provider does not have to have a "business" to be paid by you.   The care provider might be someone who babysits in their own home or it could be a daycare center, etc.   If you are paying a relative---it cannot be a relative who you are claiming as a dependent on your tax return.

[johnnyw22]

Ok thanks, because that screen in the software seems to indicate that I can only take this credit if my friend or relative that is being considered as the care provider as long as they are operating a business.   In this case, it is my mother-in-law who is the care provider, and she is providing the child care to my daughter in my home.   She is not operating any child care businesses.  Does this change the previous response, or can I still claim this credit?

[SweetieJean]

@xmasbaby0  See user's others posts on this same subject.

[xmasbaby0]

@johnnyw22 

You have been dribbling out important details that should have been included when you began posting about this, and it is really difficult to follow.   In March you began to ask about using FSA funds, and mentioned paying your mother.  Several different people have tried to answer.   Bu you keep adding little twists to the question...perhaps without realizing that they are important.    But you did not say where the child care was taking place--your home or her home.  It has since evolved to "friend or relative" and now it is mother in law and in your home.    And you are confused as to whether your childcare provider has to be running a business.

In order to make this less confusing for any of us to help with-----please re-state your question ----and  this time include all the pertinent details in one post.    Who is the childcare provider?   Where  (in whose home?)    is the the childcare being provided?   What funds are you using to pay the childcare provider---are you paying out of pocket or are you using FSA money?   

[johnnyw22]

Thank you @xmasbaby0 and @SweetieJean for your replies.  Apologies that I have made this confusing and thank you for bearing with me.  You're correct in that I may have left out some details that I did not realize that they were important, hence I am asking here  😃 

Therefore, to avoid further confusion, here are all of the details:

1) My mother-in-law came to my house to provide dependent care (child care) services to my 2 year old daughter for the following dates below, so that my wife and I am able to work at their respective full-time employment.

January 6-10, 2020	$549.75
April 20-24, 2020	$549.75
August 10-14, 2020	$549.75
December 7-11, 2020	$549.75
Total	$2,199.00

2) We had paid her in cash for the $2,199.00 amount.  

3) We have withdrawn from my Dependent Care FSA account (using the pay me back feature) for this within WageWorks.

4) My mother-in-law has entered the $2,199.00 as HSH income in her tax return.

5) She is not a dependent on my tax return.

So on my tax return, that screen in TurboTax where it says "your friend or relative counts as a care provider as long as they are operating a business. "   My mother-in-law is not operating a business, so therefore it makes me think I do not qualify for the Dependent Care Credit.  That is the question I'm trying to get clarification on, since I do not see this mentioned in the IRS publications.

Hopefully the above details are clear and I did not miss any other important detail.  Thanks again!

[xmasbaby0]

You already paid your MIL with pre-tax money if you paid her from FSA money.   You cannot double dip and then claim a childcare tax credit on your return as well.   

[johnnyw22]

Perfect, thanks for your response!

[stica1]

During covid I paid a friend informally to care for my child as he was doing school from home and I had to work.  I paid her cash.  It was like babysitting.  Is this something I can claim without getting her social.  Is less then $1000.

Thanks

[SweetieJean]

You must get her SSN.  However, she can apply on the IRS website for a free EIN if she doesn't wish to give out her SSN/.