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justineckondrat
New Member

I have W-2 income that covers the max for FICA. DH works for my business but no other income. If I get a dependent care FSA, can I issue him a 1099? Will he pay FICA?

The dependent care FSA would be from my job. The business is a side hustle as a sole prop.
6 Replies
VolvoGirl
Level 15

I have W-2 income that covers the max for FICA. DH works for my business but no other income. If I get a dependent care FSA, can I issue him a 1099? Will he pay FICA?

Yes he will pay FICA (self employment tax) even if you went over the max.   FICA is per person.  Then he can get Social Security credit for his income.   

Self Employment tax (Scheduled SE) is automatically generated if a person has $400 or more of net profit from self-employment.  You pay 15.3% SE tax on 92.35% of your Net Profit (If it is greater than $400).  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  

Opus 17
Level 15

I have W-2 income that covers the max for FICA. DH works for my business but no other income. If I get a dependent care FSA, can I issue him a 1099? Will he pay FICA?

What is DH?

 

Some points here.

 

1. If you enroll in a dependent care FSA at work, you will have to submit proof to the administrator that you paid qualified child care expenses.  Anyone who is your dependent is not a qualified person, nor is a sibling of the child being cared for.  The child's other parent can't be a paid caregiver for an FSA.   

 

2. Paying someone for child care is a personal expense for you, and has nothing to do with your side gig.  It is not an ordinary and necessary expense of the side gig and you can't deduct it as a business expense. 

 

3. You could hire someone to care for your child who also works in your business, but those are two separate transactions.  If the caregiver works in your home on your schedule, they will generally be your household employee.  You are required to withhold and pay household employee tax and to issue them a W-2.  If they provide care in their own home or other place of business, they are generally an independent contractor.  You do not issue a 1099 to someone who works for you in a personal capacity (not part of your business).  They would be responsible to keep business records and report their income on their own schedule C.  You will need to give their name, address and SSN or tax ID number to the FSA administrator and to the IRS, to qualify to exclude the FSA from your taxable income.  The IRS will look for the caregiver to report matching income. 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
VolvoGirl
Level 15

I have W-2 income that covers the max for FICA. DH works for my business but no other income. If I get a dependent care FSA, can I issue him a 1099? Will he pay FICA?

Do I understand you to say you are an employee and get a W2 but you also have your own business in addition to the W2 income?  Do you file a Schedule C for yourself?

 

He will need to file his own Schedule C for his 1099NEC income.   Be sure to assign each Schedule C to the right person.   

VolvoGirl
Level 15

I have W-2 income that covers the max for FICA. DH works for my business but no other income. If I get a dependent care FSA, can I issue him a 1099? Will he pay FICA?

@Opus 17   I think DH stands for Dear or Darling Husband.

Mike9241
Level 15

I have W-2 income that covers the max for FICA. DH works for my business but no other income. If I get a dependent care FSA, can I issue him a 1099? Will he pay FICA?

your question is quite confusing. who is DH ? is DH related to you? how? why do you think that the fact that you had max W-2 wages (you're asking from self-employed) that it would have any effect on DH?

we know nothing about your business so can't say about an FSA though that would have no effect on the reporting of the compensation paid to DH.   we also can't say whether or not a 1099-NEC is proper. if you exercise enough control over DH, the rules may say you should have issued a W-2 and withheld taxes. regardless, either form was required to be file by around the end of February.  there are penalties for late filing.  I strongly recommend you consult with a tax pro in your area.  we lack too much information and it seems you lack sufficient tax knowledge. if you err in proper reporting it can catch up to you and cost substantial additional taxes, penalties and interest.

 

Opus 17
Level 15

I have W-2 income that covers the max for FICA. DH works for my business but no other income. If I get a dependent care FSA, can I issue him a 1099? Will he pay FICA?


@VolvoGirl wrote:

@Opus 17   I think DH stands for Dear or Darling Husband.


A spouse is NEVER a qualifying caregiver for the child and dependent care credit or the use of an FSA to pay childcare expenses.  

If your spouse performs legitimate service for the business, that can be considered an ordinary and necessary business expense, then your spouse could either be a subcontractor or an employee of the business.  You can deduct a business expense, but your spouse would have to report the corresponding income.

 

Paying anyone, including a spouse, to care for your children while you work, would not be an ordinary and necessary business expense and would not be deductible as a business expense.  Even if it was, it would not qualify for an FSA or the dependent care credit, and the caregiver would have to pay income tax on the income.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
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