Does my aunt that watches our kids in exchange for housing count as a provider

[Vanessa A]

Yes and her wages would be the Fair Market Value of the housing she is provided. Since she is living in your home, she would be considered a household employee which means you may need to withhold FICA taxes for her.  You would also need to issue a W2 for her, which technically should have been done by January 31, but you can still file one for her now. 

Your aunt would then need to report the value of the housing as income and include it in her taxable income when she files a return if she has other income to report or if the value of the housing is greater than her standard deduction.  

(Edited 4/12/23 @ 2:41PM PST) @southern_fried85

[Opus 17]

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@Vanessa A wrote:

Yes and her wages would be the Fair Market Value of the housing she is provided. 

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However, if you are going to treat her as a household employee for purposes of claiming the dependent care credit, you must issue her a W-2 for her wages (or value of housing in lieu of wages), and pay household employer's tax on her wages.  And your aunt may have to report her W-2 wage income and pay tax on it, depending on her other tax circumstances.

You can't list her as a care provider without her SSN, and the IRS will be looking for a matching tax return from her. 

The household employee taxes you have to pay will largely offset the dependent care credit, and could even exceed the dependent care credit depending on your overall income and the amount of wages you assign to your aunt.   It's probably more trouble than it's worth.  Just say she lives with you and helps out.  She doesn't pay rent, you don't pay a salary, and you don't claim the credit. 

https://www.irs.gov/businesses/small-businesses-self-employed/hiring-household-employees

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

https://turbotax.intuit.com/tax-tips/irs-tax-forms/what-is-schedule-h-household-employment-taxes/L7X...