Paying a grandparent to babysit your child is a win-win situation, however, it does have tax implications. Believe it or not, the IRS has rules in place that determine whether babysitters and nannies are household employees or independent contractors. Even if your babysitter is your parent, she is responsible for reporting this income to the IRS if certain income thresholds are met. As the person paying her to babysit, you may also have to square up with the IRS as well.
Is Grandma an Employee or Self-Employed?
It can be hard to view your mother as either an employee or an independent contractor, but for purposes of the IRS, she falls into one category or the other if she is being paid to babysit your children. Because your mother is your parent, she is exempt from the nanny tax that would make her responsible for paying both Social Security and Medicare taxes of 15.3 percent on her babysitting earnings. However, this income is still subject to taxation, depending upon how much money she earned during the year in total. For 2017 IRS income minimum filing thresholds, refer to IRS Publication 17, (2017) Your Federal Income Tax For Individuals.
If your mother babysits at her home, then she is considered an independent contractor, and you should issue her an IRS Form 1099-MISC at the end of the year totaling the amount she has received for babysitting. The IRS requires payers to submit 1099-MISC when they pay an independent contractor more than $600 in a calendar year. In turn, she is responsible for reporting this income to the IRS if it exceeds $400 per year. She is, however, able to deduct certain expenses associated with babysitting, such as snacks or meals provided to the children. See IRS Publication 587, (2017) Business Use of Your Home (Including Use by Daycare Providers), for more information regarding possible daycare-related deductions.
When your mother babysits at your home, she is technically a household employee, however, you will not have to withhold FICA (Social Security and Medicare) taxes on this income, and she will not have to pay FICA taxes because she is your parent. But, she will still possibly have to report this income if she is required to file taxes for the year. You do not have to issue her a W-2 at the end of the year if you decide not to withhold FICA taxes, but it is a good idea to officially have her on the payroll. Then, she is required to report this income – and pay FICA as well as income taxes – if you claim the Child and Dependent Care Credit.
How Do I Report the Money I Pay My Mom for Babysitting on My Taxes?
If you plan on claiming the Child and Dependent Care Credit, then you must supply the Social Security information of your child care provider to the IRS. Because you are claiming this credit, you are no longer exempt from the nanny tax, and your mother will be responsible for reporting her income as well as paying her portion of FICA taxes. For the 2017 tax year, the Child and Dependent Care Credit is up to $3,000 for one eligible child, and up to $6,000 for two or more qualifying dependents. If you qualify for the credit, you need to complete IRS Form 2441, Child and Dependent Care Expenses, and Form 1040 or Form 1040A, U.S. Individual Income Tax Return.
- Turbo Tax: Child care expense question
- IRS: Publication 926, Household Employer's Tax Guide
- IRS: Topic Number 602 - Child and Dependent Care Credit
- IRS: Publication 587 (2017), Business Use of Your Home (Including Use by Daycare Providers)
- Market Watch: Hiring your parents to watch your kids
- IRS: Publication 17 (2017), Your Federal Income Tax For Individuals
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