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Starting in January 2018, I will be paying my mother to help with childcare (my daughter will be going to my mother's home). What type of paperwork/documentation will we both need to keep in order for her to report the income? Will I need to provide her with a W-2, 1099, or other type of form? Could I just write her a check each month without taking out any deductions? Does she need to pay quarterly self-employment taxes or could she just pay her taxes at the end of the year once she calculates how much she owes? I'm trying to keep it as simple as possible for the both of us.
Pay with Checks. Maybe make sure your Mother has a receipt book available if there is ever a time when you forget the checkbook and pay her with cash. Reconcile totals at the end of the year so you both show the same amount on your respective taxes.
If you are paying your mother to care for your child in her own home, then she may be an independent contractor and not your employee. If you want to be able to claim a tax credit for the payments for dependent care, she will have to give you her SSN for you to report and she will have to pick up the income as self-employment income.
You could also treat her as an employee and issue her a W-2. The nanny tax (household employee) rules generally don't apply to payments to your parent so you wouldn't have to worry about the payroll taxes.
The IRS household employee tax guide has some good recordkeeping suggestions:
Starting in January 2018, I will be paying my mother to help with childcare (my daughter will be going to my mother's home). What type of paperwork/documentation will we both need to keep in order for her to report the income? Will I need to provide her with a W-2, 1099, or other type of form? Could I just write her a check each month without taking out any deductions? Does she need to pay quarterly self-employment taxes or could she just pay her taxes at the end of the year once she calculates how much she owes? I'm trying to keep it as simple as possible for the both of us.
Thanks in advance for your help!
You do not take out taxes because you are not an employer.
You can pay her by check or cash, just keep good records.
She needs to give you her social security number if you plan on taking the child care credit.
Then she will have to pay self employment taxes 15% plus income taxes on the money you paid her. She shouldn't have to pay quarterly the first year. She could check with whoever does her taxes now to get an estimate on how much higher her tax bill will be.
Be sure you work out the numbers in advance so you both understand the tax consequences and there aren't any hard feelings at tax time.
Pay with Checks. Maybe make sure your Mother has a receipt book available if there is ever a time when you forget the checkbook and pay her with cash. Reconcile totals at the end of the year so you both show the same amount on your respective taxes.
Keep it simple.
Thank you very much! This sounds like the simplest way to handle it.
If you are paying your mother to care for your child in her own home, then she may be an independent contractor and not your employee. If you want to be able to claim a tax credit for the payments for dependent care, she will have to give you her SSN for you to report and she will have to pick up the income as self-employment income.
You could also treat her as an employee and issue her a W-2. The nanny tax (household employee) rules generally don't apply to payments to your parent so you wouldn't have to worry about the payroll taxes.
The IRS household employee tax guide has some good recordkeeping suggestions:
You do not take out taxes because you are not an employer.
You can pay her by check or cash, just keep good records.
She needs to give you her social security number if you plan on taking the child care credit.
Then she will have to pay self employment taxes 15% plus income taxes on the money you paid her. She shouldn't have to pay quarterly the first year. She could check with whoever does her taxes now to get an estimate on how much higher her tax bill will be.
Be sure you work out the numbers in advance so you both understand the tax consequences and there aren't any hard feelings at tax time.
I will let her know about the self employment taxes. Thank you very much!
You do not take out taxes because you are not an employer.
You can pay her by check or cash, just keep good records.
She needs to give you her social security number if you plan on taking the child care credit.
Then she will have to pay self employment taxes 15% plus income taxes on the money you paid her. She shouldn't have to pay quarterly the first year. She could check with whoever does her taxes now to get an estimate on how much higher her tax bill will be.
Be sure you work out the numbers in advance so you both understand the tax consequences and there aren't any hard feelings at tax time.
Out of curiosity, why does the mother need to provide the daughter with SS# in order for daughter to claim child care credit?
Folks who use daycares, etc.. don't have the SS# of those personnel. Just a business name and possibly a tax ID # (possibly)?
Genuine curiosity on my part, this isn't a deduction that applies to me, but still I like to understand things.
Out of curiosity, why does the mother need to provide the daughter with SS# in order for daughter to claim child care credit?
Folks who use daycares, etc.. don't have the SS# of those personnel. Just a business name and possibly a tax ID # (possibly)?
Genuine curiosity on my part, this isn't a deduction that applies to me, but still I like to understand things.
Because the IRS wants to make sure the recipient is paying taxes on that income.
"You must provide the name, address and Taxpayer Identification Number (TIN) of the person who provided the care. The taxpayer ID number is either a Social Security number (SSN) or an Employer Identification Number (EIN). Ask your care provider for the number."
Because it's in her home, you just do a 1099-MISC every January. It's up to your mother to file quarterly estimated taxes. In your home, by the letter of the law, she'd be a W-2 employee.
You might end up doing the math on this and conclude that it's better for everybody to pay her under the table. She's paying ~15% in self employment taxes plus some amount of income taxes. There also might be state income taxes. Do the math and figure out which way works out better.
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