Dependant care FSA to Grandparents in our house

[phisig32]

Hello,

We have both set of grandparents providing day care in our house after our daycare shut down.  

We only have $660 left in the account (all the rest went to daycare).  Do the grandparents have to report any income under this scenario or is there a threshold in which reporting requirements kick in? Looking to pay them while creating as little paperwork as possible come tax time.  

[Bsch4477]

If they babysat in your home they are classified as a household employees. The income is reported on line 1 of form 1040,  with the notation HSH to the left of line 1. To enter type> household employee income <in the find box of Turbotax.

As grandparents they are exempt from having to pay FICA tax.

[jfroistad]

We used our FSA Dependent Care to reimbursement the Grandmother for time that she watched out son in our house since daycare didn't seem like a good idea.  The total was $5000 that was sent to Grandmother.  Do I need to provide her with a 1099 form or something similar for her tax returns?  The money went directly from FSA to her.  

[DawnC]

To report the childcare expenses on your return, you will need to enter her social security number as the child care provider's tax identification number. 

If you claim the dependent care credit, she will have to claim the money as income and pay social security and Medicare tax (15.3%), as well as income tax.

If she babysat in your home, instead of hers, she is classified as a household employee.  Grandparents (parent of the taxpayer) are exempt from the "Nanny tax".   That is, she will not have to pay social security and Medicare tax.  But the  income is still subject to some  income tax. 

If you pay a person in your home, most of the time they are your household employee and you must give them a W-2 and pay the household employee's tax (social security and Medicare).  If they work in their home, then most of the time they are self-employed and are expected to file a self-employment tax return.     @jfroistad