My child's grandmother is going to provide day care in my home. I know she needs pay statements, but do I also need to produce a W2 for her? Any withholdings?

[chrisboyce013]

The amount paid will surpass $5,000 - but we opted to use a dependent care FSA to reduce taxable income from my employer instead of the dependent tax credit. 

[TaxGuyBill]

There are a few exceptions to what Hal_AL said below.  To help us astertain if those apply to you, here are a few followup questions:

Is the grandmother your mother, or is it the other parent's mother?
Are you married to your child's other parent?  If not, give details about the situation.  Are you paying the grandmother, or is the other parent paying the grandmother?

[Hal_Al]

Grandparents are generally exempt from the "Nanny tax". You do NOT need to do withholding or  pay FICA tax or issue her a W-2. She will still need to report the income (unless he total income is under the filing threshold). Paying her by check and/or issuing pay statements may help her with that, but it is not mandatory. 

She will still declare the income as Household Employee Income but will not have to pay FICA  (social security and medicare tax). That can be a little tricky entering in TurboTax

Reference: https://www.irs.gov/taxtopics/tc756.html

See page 5 at https://www.irs.gov/pub/irs-pdf/p926.pdf for exceptions to the grandparent exemption.

[LAG1975]

If there is no W-2 required, what tax form is used to report it, and how is it entered into Turbotax as income?  The IRS Publications do not seem to properly address this.

[Hal_Al]

In TurboTax, enter at:

 Federal Taxes

Click on Wages and Income

Scroll down to Less Common Income

On Miscellaneous Income, 1099-A, 1099-C click the start button

On the next screen click the start button on Other Income not already reported on Form W-2 or Form 1099

Answer Yes on the next screen and continue the interview until it completes.

TurboTax puts the amount on line 1 (wages) of form 1040 (line 7 prior to 2018) with the notation “HSH”. It is considered earned income.

Longer write-up at https://ttlc.intuit.com/questions/2548505-i-am-a-household-employee-i-have-about-12-employers-they-s...

[LAG1975]

I am questioning the answer about the necessity of issuing a W-2 for a grandparent nanny in the child's home.  I have come across this information in my research and there appears to be a $600 payment limit to avoid it:

General Instructions for Forms
W-2 and W-3
Who must file Form W-2. You must file Form(s) W-2 if
you have one or more employees to whom you made
payments (including noncash payments) for the
employees’ services in your trade or business during
2019.
Complete and file Form W-2 for each employee for
whom any of the following applies (even if the employee is
related to you).
• You withheld any income, social security, or Medicare
tax from wages regardless of the amount of wages; or
• You would have had to withhold income tax if the
employee had claimed no more than one withholding
allowance or had not claimed exemption from withholding
on Form W-4; or
• You paid $600 or more in wages even if you did not
withhold any income, social security, or Medicare tax.
Only in very limited situations will you not have to file
Form W-2. This may occur if you were not required to
withhold any income tax, social security tax, or Medicare
tax and you paid the employee less than $600, such as for
certain election workers and certain foreign agricultural
workers. See Election workers and Foreign agricultural
workers, later.

[KarenJ2 · Accepted solution]

There are exceptions for reporting the income you pay your child's grandmother for watching your child while you work.  You can provide her a Form 1099-MISC which she would report as other miscellaneous income on line 8, 2019 Schedule 1. Other Income.  She will not report it as self-employment income as she is not in the business of providing care giving services.  

Please see the following links:

Family Caregivers and Self-Employment Taxes- IRS

[ctyates_824]

What if I want to issue a W2, I want to pay for the taxes so she does not have to. So I'm confused, are grandparents exempted from receiving W2?

I paid my MIL - 4,502 in 2019. Do I have to issue a W2/1099-Misc? I did use my Dependent Care FSA funds to pay for her. 

[DaveF1006]

Yes you are required to pay nanny taxes for a household employee if you paid over $2200.  It makes no difference whether or not if you are a grandparent or used Dependent Care FSA funds to pay for her. 

Here are navigational steps to report this in Turbo Tax and to get your W2 to issue to your employee.

Here are the navigational steps you will use.

1) log into Turbo Tax Online.Self -Employed

2) Select Federal>wages and income

3) Scroll to all income>Self Employment>self employment and expenses Select Start

4) Select yes when it asks Did you have any self-employment income or expenses?

5) Then it will ask you what type of business you are in. indicate you are a Household Employer

6) next question indicate Nanny Services continue

7)  Select I started Nanny services in 2019 or whatever the correct answer is on this screen. continue

😎  Did you pay any employees in 2019   here you will select the link that says Help me prepare W2 and 1099.  When you select this link, there will be a screen open on the right side program that says;

How do I create W-2s and 1099 forms?

You can fill out 1099-MISCs and W-2s online by going to Quick Employer Forms from TurboTax.  

Click on Quick Employer Forms link and this will guide you in preparing a W2 for your household employee. 

[Hal_Al]

You are NOT  required to pay nanny taxes for a household employee  who is your (or your spouse's) parent.  A household employee, by definition,  is one that works in your home, not theirs. Even though you are exempt, you are still allowed to issue them a W-2 or even a 1099-Misc. It's just not mandatory.  A 1099-Misc will subject her to self employment tax.

You do not "have to" issue a W-2  in order to use your FSA, but it could be helpful. You do need to provide her SS# on your form 2441.  So, it would be a good idea for her to report the income, on a tax return, even if she is not otherwise required to file.

One of my previous replies, above, describes how she enters her income, in TurboTax, without a W-2 or 1099.

[Shelby12]

I am planning on paying a total of $12,000 this year, to my mother for childcare,  while I work, she will be caring for the children in her home that we also live in. 

Will either of us owe money for ANY taxes at the end of the year?  State, federal, Medicare, social security etc. 

[Hal_Al]

@Shelby12 - Simple answer: No.

However, if you want to claim the dependent care credit, based on that money, then you mother must report the money as income.

Details are covered in previous replies

[cfelrod]

Have a rather odd situation: 

    My daughter paid me less than $2200 in 2019 for babysitting my grandchild.  She had not realized that she could claim the dependent childcare credit if her spouse had no earned income, so she had an FSA account from which I was paid.  So, she will be completing form 2441 with my SSN given as child care provider, but she won't be allowed to take the deduction on her taxes.

    I understand that I am not subject to the nanny tax, but my question is whether or not I would need to report this as income since they won't be allowed to take the tax deducton.

[DeanM15]

Your Social Security number and amount of income are being reported to the IRS. I would declare the $2,200 as income. 

@cfelrod

[Hal_Al]

@cfelrod  Simple answer: No. You may treat the money as a gift.

But, that is not only because your daughter cannot claim the dependent care  credit; it's because she also cannot use her FSA account to pay you with tax free money.  Because her spouse did not have earned income, she will have to pay tax on her FSA funds.  The additional income will be calculated on form 2441. As such, your Social Security number and amount of income will not be reported to the IRS.

References: https://ttlc.intuit.com/community/tax-credits-deductions/discussion/i-put-5k-in-a-dependent-care-fsa...

https://www.investopedia.com/articles/pf/09/dependent-care-fsa.asp