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?

[onevoice247]

Thank you so very much! 

[tennischamp]

@DavidD66 or other Experts- I have a "what's required to be filed by parent vs grandma" question but for a different end goal: Roth IRA contribution for grandma. 

Scenario:

1. Grandma is age 66 and helps take care of grandchildren during school breaks (e.g. spring break, winter break, holidays)

2. Grandma is a widow and RETIRED, is frugal, and lives off of Social Security and decent sized savings account (also has retirement accounts that she has NOT needed to withdraw from)  

Goal: 

1. Grandma wants to maximize grandchildren's inheritance from her assets (grandchildren will inherit everything). Specifically, Grandma wants to contribute to a Roth IRA so that the earnings can grow tax-free, and grandchildren (ages 3 and 5) are the Roth beneficiaries. 

2. From a MAGI (modified adjusted gross income) perspective, Grandma meets the Roth requirements. However, since Grandma is retired, she still needs IRS recognized Earned Income to contribute into the Roth.  

Questions

1. Can Parents write Grandma a $6,500 check for babysitting work this year so that amount can be recognized as Earned Income in order to fund Grandma's Roth IRA?

2. If so, what tax forms need to be filed by Parent and Grandma so that the $6,500 is officially considered earned income?  (note: parents in this situation will NOT need to claim the Child and Dependent Care credit through Grandma's babysitting money. They plan to claim through other daycare/pre-school expenses etc) 

[Hal_Al]

Q1. Can Parents write Grandma a $6,500 check for babysitting work this year so that amount can be recognized as Earned Income in order to fund Grandma's Roth IRA?

A1. Yes

Q2. If so, what tax forms need to be filed by Parent and Grandma so that the $6,500 is officially considered earned income?  

A 2. The Parents don't need to file any forms (although that is an option). If Grandma baby sits in the parent's home, she files the income as Household employee income on line 1b of form 1040 (this is a new line starting in 2022).  If she sits in her own home, she files it as self employment, on Schedule C, and also  files Schedule SE to pay "self employment tax" (social security and medicare). 

[alexerin08]

Hi, I paid my mom about $2700 for taking care of my kids during summer&winter breaks. It is time to year end tax preparation, do you know what document, if any, I need to prepare and send to my mom for her tax return filling?

[xmasbaby0]

@alexerin08 Where did your mother take care of the children------her own home or your home?

[alexerin08]

both my home (summer break) and her home (Winter Break).

[xmasbaby0]

Since your mom was not in your home for all of the childcare she provided, you do not have to call her a "household employee" for the amount she earned.  She simply has self-employment income for which you do not issue any sort of document.   She must report the self-employment income on her own return.   If she was taking care of the children so you could work, then you will enter the amount you paid her when you seek the childcare credit on your own return.  The amount you enter must match the amount she enters on her return as self-employment income.  You will need her Social Security number or Tax ID for your return.

Your mother can enter any expenses she incurred when she was babysitting such as mileage for driving the children to activities, etc., food, entertainment for them, etc. etc. on a Schedule C on her own tax return.  She will be paying self-employment tax for Social Security and Medicare.

[xmasbaby0]

@alexerin08 To clarify for you-----the reason for asking where your mom took care of the children is that if she earned $2600 or more in YOUR home, she would be a "household employee"---but the amount you mentioned must have been less for the care in your home, added to the amount you paid her for the care in her own home.

https://ttlc.intuit.com/turbotax-support/en-us/help-article/tax-payments/pay-taxes-pay-household-emp...

[Aims173]

This is by far the best detail description for such cases. Thank you. I have a quick question - In case where the grandparents live with their kids and provided service in their kids house > For 2023 tax year, do grandparents still show such income on line 8 in form 1080 or is this now reported on Line 1B - Household employee wages not reported on Form W2? Thanks.

[AbrahamT]

It would be reported on Line B  Household employee wages not reported on Form(s) W-2 .

[ejng]

How do you get that to show up in your return using turbotax?

[Hal_Al]

In TurboTax, enter Household Employee wages 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 1b of form 1040.

[DianeW777]

You must use Dependent Care Credit under Deductions and Credits. A Schedule H is not required for your parent/grandparent so do not check the box for household employee.

Your parent or grandparent must claim this as self employment if the care was done in their home.   You do not need to supply any tax form. A parent/grandparent is an exception to the household employee tax requirement (so called "nanny tax"). But the income IS taxable to your parent(s), particularly if you plan to claim the child and dependent care credit.  You must use their SSNs and address. 

If it was done in your home, then your parent should follow the procedures below which eliminates the self employment tax:

1. Click on Wages and Income 
2. Scroll down to Less Common Income 
3. On Miscellaneous Income, 1099-A, 1099-C click the start button
4. On the next screen click the start button on Other Income not already reported on Form W-2 or Form 1099
5. Answer Yes on the next screen and enter the amount under Household Employee Wages. Enter the full amount received
6. Continue until you have finished this section.

[Aims173]

sorry one follow-up question - Does this qualify for Earned Income Credit? If grandparents only have day care income received from kids? Can they claim EIC for such lower income.  

[DaveF1006]

To clarify, is it you that wishes to claim the credit or the Grand Parents?