Can I pay my dad to baby sit my child even if he lives with me?

[Catalina219]

Hello, 

I have a couple of questions.

My dad will move in with me and he will help with watching my kid while I am at work. Can I pay him for those services ? I currently pay the school (for afterschool) $300 so I was going to pay him the same a week. I understand he will have to file taxes and pay taxes on that money as his income. Is that correct? Secondly do I have to issue a W2 or a 1099? Do I or him need to report the income quarterly to IRS? Do I have to apply for a Tax ID or can we use our social security number?  Can he apply for health insurance via the market place at that point? Anything I am missing? Does he need to issue an invoice to me or do we just keep track of regular payments? 

[TomD8]

Yes, you can pay your Dad for those services.   Yes, he has to report the income on his tax return.  You do not have to withhold payroll taxes (Medicare, Social Security) or issue a W-2 unless both of the following conditions apply:

1. The child is under the age of 18, or 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.
2. Your marital status is one of the following:
   1. You're divorced and have not remarried.
   2. You're a widow or widower.
   3. You're living with a spouse whose physical or mental condition prevents them from caring for child for at least 4 continuous weeks in the calendar quarter services were performed.

Although wages paid to a child, spouse, or parent may be excluded from social security, Medicare, and FUTA taxes as described above, those wages are still subject to federal income tax.

You don't have to issue a 1099, since your father is not providing services in the course of your business.  Only businesses issue a 1099-NEC; individuals do not.

You're not required to withhold federal income tax from your father's pay, but you may do so if you choose.  If you do, you must issue a W-2.  

You'll find the full details on all these rules in this IRS Publication:

https://www.irs.gov/pub/irs-pdf/p926.pdf 

[Catalina219]

Thank you so much for your answer. I have a follow up question.  My kid is 5 years old and my husband also works crazy hours but his physical or mental condition DOES NOT prevents them from caring for child for at least 4 continuous weeks in the calendar quarter services were performed - but just us working is to crazy to make it to get him from school on time.  So it does not look like we would meet these 2 rules that have to happen at the same time.

Could we still pay my dad and declare that income? Do I need to do anything extra in that case since I do not meet the 2 conditions? 

Thank you for your time

[TomD8]

Yes, you can still pay your Dad. 

You don't "declare" that income; your Dad declares it on his tax return.  You may be able to declare the Child and Dependent Care Credit on your tax return.  Here's a link to TurboTax's help article on that subject:

https://turbotax.intuit.com/tax-tips/family/the-ins-and-outs-of-the-child-and-dependent-care-tax-cre...

Both you and your Dad need to keep track of the money you pay him, because you'll both need that information for your tax returns at year's end.

[Opus 17]

---

@Catalina219 wrote:

Thank you so much for your answer. I have a follow up question.  My kid is 5 years old and my husband also works crazy hours but his physical or mental condition DOES NOT prevents them from caring for child for at least 4 continuous weeks in the calendar quarter services were performed - but just us working is to crazy to make it to get him from school on time.  So it does not look like we would meet these 2 rules that have to happen at the same time.

Could we still pay my dad and declare that income? Do I need to do anything extra in that case since I do not meet the 2 conditions? 

Thank you for your time

---

The two tests only apply to the requirement to issue a W-2 and withhold social security and medicare tax, and pay household employees tax.  You generally must withhold and pay those taxes for any employee working in your home, but parents and some other relatives are exempt from the requirement.  But, if the child is disabled and you meet the other tests, then you must withhold and pay those taxes even if the employee is a relative (because taking care of a disabled child is more like work-work and less like family helping out).

So you can pay your relative for care.  As long as the child is not disabled, and does not meet the two tests, you do not have to issue a W-2, you don't withhold social security tax, and you don't file schedule H to pay household employee tax. 

Your father must report the income on his tax return even if you don't issue a W-2.  He includes the income on line 1 of form 1040 (along with any other income) and writes "HHS" next to the amount.     It may or may not be taxable, depending on his other income and tax situations.

To claim the child care tax credit or use DCFSA funds to pay your father for care, you must report his name and SSN on your tax return on form 2441.   That will inform the IRS to look for matching income on his return.