I saw as parents employed by children are exempt from FICA. Parents are also exempt as household employees. But I also saw below statement saying they can if that's their principle occupation.
I'm really confused. If I pay my mom for housekeeping and etc, is she eligible to pay those to accrue 40 quarters? If yes, what do we each need to file for tax?
I asked an accountant and was told I don't need to do anything and she just file 1099. I saw discussions about schedule C, 1099, W2 online, but not sure if she can and what to do exactly. Thanks.
https://www.irs.gov/newsroom/tax-situations-when-taking-care-of-a-family-member
Employers generally don't withhold or pay FICA taxes on wages they pay to their spouse, a child under age 21, a parent or an employee under age 18 unless performing household work is their principal occupation. But, they need to report the compensation on a Form W-2, Wage and Tax Statement.
from IRS Circular E
Parent employed by son or daughter.
When the employer is a son or daughter employing his or her parent, the following rules apply.
• Payments for the services of a parent not in the son’s or daughter’s (the employer’s) trade or business are generally not subject to social security and Medicare taxes except if payments are made to a parent for domestic services and all of the following apply :
• The parent is employed by his or her son or daughter.
• The son or daughter (the employer) has a child or stepchild (including an adopted child) living in the home.
• The son or daughter (the employer) is a widow or widower, divorced and not remarried, or living with a spouse who, because of a mental or physical condition, can't care for the child or stepchild for at least 4 continuous weeks in the calendar quarter in which the service is performed.
• The child or stepchild is either under age 18 or, due to a mental or physical condition, requires the personal care of an adult for at least 4 continuous weeks in the calendar quarter in which the service is performed.
IRS PUB 926 says the same but in a different way
Your parent. Exception: Count these wages (for social security and medicare taxes) if both
the following conditions apply.
a. Your parent cares for your child (including an adopted child or stepchild) who is either of the following.
i. Under the age of 18.
ii. 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.
b. Your marital status is one of the following.
i. You’re divorced and haven't remarried.
ii. You’re a widow or widower.
iii. You’re living with a spouse whose physical or mental condition prevents him or her from caring for your child for at least 4 continuous weeks in the calendar quarter services were
performed.
if the parent is exempt from social security and medicare taxes, you have no tax filings to do.
also exempt from social security and medicare if paid less than $2,300 in 2021
otherwise, the following applies:
apply for an EIN
file schedule H with your 2021 return
file forms w-2 and w-3 with the Social Security Administration
warning state laws may differ.
Thanks for your reply. So that "exempt" actually means "don't have to / optional" or "can't"?
My mom's case is she is hoping to pay FICA if she is allowed to in order to accrue 40 quarters eventually. I am paying her >2300 per year, but I'm not on those exception list. If what I pay her is eligible for her to pay SSN and medicare tax to accrue 40 quarters then she doesn't need to work for someone else. I found below link and I am thinking it might mean it's okay to pay FICA for her case?