Paying mother for childcare

[shanijav]

I am paying my mother 250 $ / week to baby sit my daughter and also to help my wife at home ( it is hard to give her the money but I feel better this way ). This makes her income of around 12000 $ / year. 
Can i claim that as a "child care credit" when I do my taxes ? Do I have to file her taxes such as Social security, Medicare etc ? How can I do that ? 

Also does she have to file taxes on her income ? how can she do  that ? 

[DoninGA]

Does your wife also work and have an earned income?  If not you cannot claim the child care deduction/credit unless she is a student or unable to care for herself.
Your mom would report the income on Form 1040 Schedule C as self employment income.  She would also deduct any expenses she incurs for the child care she provides.  She may have to pay income taxes on the income and also Self Employment taxes on the net income from the self employment.

[shanijav]

Thank you for responding.
No, My wife does not work at present.
So my mom can report her income and pay taxes by herself when it comes to filling the taxes ?
Also do I have to give her a W 2 or pay for any of her taxes like SS, medicare etc ? She comes to my place to baby sit and on some days we drop the baby to her house. ( she lives with my brother ).
I pay her cash.
I am a new parent and have zero knowledge about taxes so asking so many questions.
Any other things that I need to do on my end ?

[shanijav]

ohh ok. sounds good. Thanks a lot for your help..!!!

[DoninGA · Accepted solution]

The arrangement that you have with your mom would indicate that she is an independent contractor and not an employee.  So if not an employee you do not have to provide her with a W-2 or pay any taxes for SS or Medicare for her.  
She uses her own records to report the cash income and any expenses.  
When she pays the Self Employment taxes for her net income on a Federal tax return, that pays for both the employer portion and the employee portion of SS and Medicare.

[TaxGuyBill]

A couple of other thoughts:

Because your wife does not work, you do not qualify for the Child Care Credit (unless your wife is a full-time student or disabled enough that she can not care for herself.


It would actually result in less taxes if your mother ONLY came to your home, and you did NOT drop the child off at her home.  That would probably make her a "Household Employee", but as your parent watching your child she would be exempt from Social Security and Medicare taxes.

On the other hand, it may be better to continue this arrangement so she builds up "credits" with Social Security, and that would qualify her for Social Security when she is old enough and/or increase the amount of Social Security payments that she receives.

[shanijav]

Thank you for responding. Will keep that in mind.
do I need to have any documentation too that I pay her ? as i usually pay her cash and that too forcefully as she refused to get paid for this, but it helps her to take care of some of her personal needs so I feel satisfied that way.

[SweetieJean]

She may also qualify for EIC.

[shanijav]

also as she lives with my brother at his house, he claims her as a dependent on his taxes since my mother never worked here until recently. Now as she is getting paid to baby sit, can my brother still continue to claim her as a dependent or can she file her own taxes from now own. ?
Thank you all for your help. I really appreciate that

[shanijav]

another thing that came in my mind. Can she also apply for her own individual health insurance and get the credit according to ACA as she is making 12000 / year by baby sitting and filing her own taxes ?

[TaxGuyBill]

No forms are necessary.  In the event she is becomes a Household Employee (she only works at your home), issuing a W-2 to her may make it easier for her to file her tax return, but it would not technically be necessary.

If she is receiving payments for work that are over $4050 a year, no, your brother can not claim her as a dependent.  She would claim her own exemption on her own tax return.

However, because she is family, you *MIGHT* consider altering your arrangement.  In the event that you decide to give her random "Gifts" throughout the year (not directly connected with her watching your child), then she would need to file a tax return, and your brother could still claim her as a dependent.  Depending on ALL of her circumstances, that may or may not be the best result.  If she needs Social Security credits or ACA Health Insurance, that might not be the best result.  If she does not need either (if she has Medicaid), that might be the best result.

Yes, if her income is over $11,770 (2017 amount), she would qualify for the Premium Tax Credit to greatly reduce the cost of her health insurance bought through the Healthcare Marketplace (assuming she meets all of the other requirements).  On the other hand, with no income, she may qualify for free Medicaid (if she is not a US Citizen and has lived in the US for less than 5 years, she may not qualify for Medicaid until the end of the 5 year period).

[shanijav]

Thank you for clearing my doubts. Appreciate that a lot.