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?

[macuser_22]

---

@bjshenjie wrote:

hi, i paid $18000 for my parents to babysit my kids in 2020. I didn't issue her any W2 or 1099. I saw the post that she can still report her income as "other misc income". In this case, can she still pay medicare tax (she is trying to get medicare later)? Also do I need to report these expense through my tax? 

Thanks in advance

---

It depends where the sitting was done.    If in your home then the "Household employee" rules determine and not W-2 or withholding is necessary for a parent.  See IRS Put 926 for details - https://www.irs.gov/pub/irs-pdf/p926.pdf

If in the parents home then it is considered to be self-employed income reported on the parent's schedule C and SS & Medicare tax must be paid on a form SE (Self Employed tax) on income over $400.

[bjshenjie]

@macuser_22 It was done at my house and I think she can claim it as other misc income? I didn't know i had to prepare W-2 by Jan31 and the deadline is passed. Is there other way for my parents to pay medicare tax without W2?

[Hal_Al]

Q. She can still report her income as "other misc income". In this case, can she still pay medicare tax (she is trying to get medicare later)? 

A.  No. If she wants medicare credit, she will have to file as self employed. That is allowed.  But she will have to pay about 14% as self employment tax (SET), in addition to any income tax.  SET is how the self employed pay their  social security and medicare tax.  Paying just the medicare portion is not an option. 

Q. Also do I need to report these expense through my tax? 

A.  Generally no.  If you are claiming the dependent care credit, you do need to report what you paid and who you paid it to. 

[macuser_22]

Since household employee income is expected to be paid on a W-2 on the 1040 line 1, it can be reported as "Household Employee Income without a w-2".    That is normally limited to $2,200 because more then that required a W-2, but parents are exempt form the W-2 requirement so the $2,200 can be ignored.

Household Employee income under $2,200 should be reported in:

Miscellaneous Income
Other Income not reported on a W-2
Other wages (yes)
House Hold Employee.

OR  Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "household employee income” which will take you to the same place.

[bjshenjie]

Thank you for answering.

1. Can my parents use TurboTax Self-Employment software and to pay self-employment without W-2? I didn't withhold any tax for them.

2. In the first line of 1040, do they fill in all $18000 that they make as self-employment? Then turbotax will calculate how much tax they owe? 

3. They choose "self-employment without W2", but the amount exceed $2200. Will it raise a red flag to IRS? Is there a way to explain they are grandparents while filing tax? 

4. In this case, do I owe any tax because i didn't properly file W-2 for them? What do I do? Will IRS contact me?

@macuser_22 @Hal_Al 

[macuser_22]

---

@bjshenjie wrote:

Thank you for answering.

1. Can my parents use TurboTax Self-Employment software and to pay self-employment without W-2? I didn't withhold any tax for them.

2. In the first line of 1040, do they fill in all $18000 that they make as self-employment? Then turbotax will calculate how much tax they owe? 

3. They choose "self-employment without W2", but the amount exceed $2200. Will it raise a red flag to IRS? Is there a way to explain they are grandparents while filing tax? 

4. In this case, do I owe any tax because i didn't properly file W-2 for them? What do I do? Will IRS contact me?

@macuser_22 @Hal_Al 

---

#1 Yes, they can forgo the tax treatment for parents and file a schedule C as self-employer but then they will have to pay Social Security and Medicare tax on schedule SE.  

#2 is not self-employed - it is W-2 income without the W-2.     By entering it that way the income will go on the 1040 line 1 with "HSH"next to it.

#3  Quite likely the IRS might question it, but a simple explanation that now W-2 was required for a parent should satisfy them.  The IRS expects a W-2 if over $2,200 - but parents do not need a W-2.

You can also report it as "Other Income" as suggested but the IRS is equally likely to question the source of the "other income".

#4 You will not be involved.  The tax return  with TurboTax is "self-prepared" by the filer.

Either way, they might have an underpayment of tax penalty if there was estimated tax paid during the year.

[Hal_Al]

To enter as self employment, 

 In TurboTax, enter at:
- Federal Taxes tab

 - Wages & Income

Scroll down to:

- Business Items

   - Business Income & Expenses (Sch C)

To enter as Household Employee wages (and not pay social security and medicare tax)

In TurboTax, enter at:

- Federal Taxes

   - Wages and Income

Scroll down to

  -Less Common Income

      -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. On the net screen, enter your income as Household Employee Wages (ignore the $2100 limit, it doesn’t apply to grandparents) and continue the interview until it completes.

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

[bjshenjie]

Thank you guys!

@Hal_Al Do I understand it correctly:  the only way to pay social security tax and medicare tax is to file as self-employment in schedule C? Do they need to have a company in order to file as self-employment or individual is fine? Are there any tax forms (like W-2) needed to file as self-employment?

Is there a way to pay SS tax and Medicare tax, if they file as "other income without W-2"?

Thanks in advance!

[macuser_22]

---

@bjshenjie wrote:

Thank you guys!

@Hal_Al Do I understand it correctly:  the only way to pay social security tax and medicare tax is to file as self-employment in schedule C? Do they need to have a company in order to file as self-employment or individual is fine? Are there any tax forms (like W-2) needed to file as self-employment?

Is there a way to pay SS tax and Medicare tax, if they file as "other income without W-2"?

May I ask - why do they want to pay SS and Medicare tax if not required?

No, other than self-employed, there is  no other way to pay to pay SS and Medicare tax if not withheld by an employer.   Self-employed *is* a business, even if its only a babysitting business.

[Hal_Al]

Q.  Is  the only way to pay social security tax and medicare tax is to file as self-employment in schedule C?

A. It's not the only way, it's the easiest way.

Q. Do they need to have a company in order to file as self-employment?

A. No. Schedule C is a very common things, for individuals, in today's "gig economy".

Q.  Are there any tax forms (like W-2) needed to file as self-employment?

A.  No, She reports the income from her own records. 

Q. Is there a way to pay SS tax and Medicare tax, if they file as "other income without W-2"?

A. Yes.  You can pay the "nanny tax" by filing Schedule H with your return and issuing her a W-2.

@macuser_22  Poster indicated earlier that his Mom wants to build up credits to qualify for Medicare

[bjshenjie]

@Hal_Al Because they would want to apply for medicare in the future and that requires 10 yr of medicare tax paid. They didn't meet that requirement yet.

Do they have to register a company in order to file self-employment? Or they could file without a company?

Thanks 

[bjshenjie]

Also, if they file as self-employment, is it ok they don't have W2 or 1099? Do i need to half of SS tax and medicare tax? or they can pay 15% in schedule C without involving me?

[Hal_Al]

Q. Also, if they file as self-employment, is it ok they don't have W2 or 1099?

A. Yes. The self employed need no tax forms to file. 

Q. Do i need to half of SS tax and medicare tax? or they can pay 15% in schedule C without involving me?

A. They pay the whole 15.3%.  It works out to 14.1% when TT gets done with the calculations.

Q. Do they have to register a company in order to file self-employment? Or they could file without a company?

A. No.  The forms prepared by TT, and filed with their tax return are the only paper work needed; Schedule C and Schedule SE 

[fimer]

For a mother in law nanny with no withholding, do we need to apply for a Employer Identification Number? 

[macuser_22]

No.  There is no form to issue to a parent.