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?

[Aims173]

Thanks, Grandparents. Updated the question as well 🙂

[DaveF1006]

Yes, this would qualify for the earned income credit if the income is reported in the manner that DianeW777 suggests. Also, your grandparents need to live in the same home as the child for more than 1/2 year.

[mbarrera345]

@Hal_Al 

what is the current process for reporting self employment income? I do not see the "business" section you mention

I pay my mother 12,000 annually for childcare in her home. I have claimed the dependent care credit and entered her SSN and name on my end. She was previously filing as other misc income with HSH designation on 1040 but now realized that she is not gaining any credits towards social security. 

From what I have gathered in this thread, she should report what I pay her as self employment schedule C? is this correct? 

Thank you!

[DawnC]

Yes.   She can report her income on Schedule C using the instructions here > How do I report income from self-employment?

@mbarrera345

[lixiang]

Hi,

By not checking the box of household employee, would the IRS misunderstand the service provider self employed instead of being grandparents? Would it be better to check that box and not filing Schedule H? 

@nannytax

[JotikaT2]

Schedule H would only be required for your parent if they provided childcare that occurred within your home when certain specific situations are met:

• Your child that lives with you is under 18 or has a physical/mental condition which needs personal care for at least 4 continuous weeks
• You are divorced and not remarried, a widow, or married to someone who has a physical or mental condition that prevents them from caring for the child for at least 4 continuous week.

If you meet either of these requirements as stated on page H-5 of Schedule H instructions, then you would need to include the parent as a household employee.

@lixiang 

[lixiang]

Thanks @JotikaT2. I agree there is no need to file schedule H for parents under normal circumstances. My point is they should still be considered as household employee, and we should check yes on the house employee box (part 1, column d) on form 2441. Otherwise  I'm worried the IRS may misunderstand them as self employed (e.g. day care center)?

[JotikaT2]

Assuming your parents are not household employees, you would need to check no since they are technically not considered to be your household employee.  If they fall under the exemptions to the normal rule, then you would select yes.  Please see the instructions for Form 2441 here.

@lixiang 

[lixiang]

@JotikaT2 The reference you gave says 

• If you pay someone to come to your home and care for your dependent or spouse and you can control not only what work is done but how it is done, that person is probably a household employee and you may need to file Schedule H (Form 1040), Household Employment Taxes, with your tax return and pay household employment taxes.

My parents did come to our house to care our child. That's why I think they should be considered household employee. It's just that I don't need to withheld tax for them, hence no schedule H needs to be filed. I couldn't find anywhere stating parents should not be considered household employee.

Also there is no where on form 2441 to indicate whether the care providers are your parents. By checking 'no' I'm worried IRS would misunderstand them as self employed (e.g. day care center)

[JotikaT2]

Thank you for the clarification.  You cannot mark anywhere on Form 2441 that your parents are providing the care.  You can still pay them, report these costs as part of your Child & Dependent Care Expenses, and your parents will be required to report this income on their tax return as other income on Schedule 1.  Since it sounds like you meet the requirement, you would not need to withhold Social Security or Medicare taxes like you would for a normal household employee, and as such, would not treat them as household employees when you complete your tax return.  That is the essential difference.  

If the IRS has any concerns, they will reach out with a letter requesting additional information.  You can then provide the information needed to show that your parents are providing the care and meet the exception to not have taxes withheld as a household employee.

Please also see do I need to file IRS Schedule H.

@lixiang 

[AmeliesUncle]

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@lixiang wrote:

 My point is they should still be considered as household employee, and we should check yes on the house employee box (part 1, column d) on form 2441. 

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You are correct, you check that box because the are a Household Employee.

As you said, Schedule H is not necessary but I hope you filed their W-2.