Question about Child and Dependent Care Credit (Mother-in-Law)

[jmnicola]

Working on my tax forms for 2021. Throughout the year my mother (my wife's mother-in-law) would come over and help watch our kids so we could run errands or go to appointments. We would repay her services with helping on gas money, groceries for her while she stayed, or anything else additional she may have needed. We are thinking this is claimable to some degree on the Child and Dependent Care Credit. To what degree is this claimable? My mother already filed her tax return, is this something she would have to amend her form for? Is it considered taxable income on her end? Is this worth trying to claim for us?

[ErnieS0 · Accepted solution]

You can claim any payments of services you made to your mother for watching your children. From you description, it's unclear whether you had any type of arrangement or made actual payments.

Helping with gas money or stocking your pantry while she stayed seems more like gifts. Additionally it doesn't sound like you have any receipts as proof of payment in the event of an audit.

Your mother would have to claim any payments as income on her tax return. The IRS will know if she doesn't because you have to put her social security number on your return in order to claim a credit.

Since she was not an employer, she would be considered self-employed and would have to pay self-employment tax in addition to income tax.

Payments to Relatives or Dependents

You can count work-related payments you make to relatives who aren't your dependents, even if they live in your home. However, don't count any amounts you pay to:

1. A person for whom you (or your spouse if filing jointly) can claim as a dependent;

2. Your child (including stepchild or foster child) who was under age 19 at the end of the year, even if he or she isn't your dependent;

3. A person who was your spouse any time during the year; or

4. The parent of your qualifying person if your qualifying person is your child and under age 13.

[jmnicola]

I think I better understand how the Credit works, thank you

Can you elaborate further on this section of your reply:

"You can count work-related payments you make to relatives who aren't your dependents, even if they live in your home. However, don't count any amounts you pay to:

1. A person for whom you (or your spouse if filing jointly) can claim as a dependent;

2. Your child (including stepchild or foster child) who was under age 19 at the end of the year, even if he or she isn't your dependent;

3. A person who was your spouse any time during the year; or

4. The parent of your qualifying person if your qualifying person is your child and under age 13."

What exactly is the definition of this 'work-related' payments? Is this still part of the Child and Dependent Care Credit or another type of deduction?

[JohnB5677]

You can count work-related payments you make to relatives who aren't your dependents, even if they live in your home.

• A work-related payment is an amount you (or your spouse in the case of a joint return) pay for the care of a qualifying person, or for household services if at least part of the services is for the care of a qualifying person, in order for you to work or look for work.

However, don't count any amounts you pay to:

1. A person for whom you can claim as a dependent;

   1. You can not pay someone that is your dependent.

2. Your child (including stepchild or foster child) who was under age 19 at the end of the year, even if he or she isn't your dependent;

   1. You can't pay a child that files a separate tax return if they're under 19

3. A person who was your spouse any time during the year; or

   1. You can't pay your ex-spouse until a full year has passed

4. The parent of your qualifying person if your qualifying person is your child and under age 13.

   1. You can not pay the parent of a child that is under 13, even if the child is your dependent.

[Hal_Al]

You only claim the Child and Dependent Care Credit if you pay somebody to watch your child while you work. Paying them while you run errands or go to appointments does not count.