Discussion Archives:Child & Dependent Care Services: Grandparent

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Discussion Forum Index --> Advanced Tax Questions --> Child & Dependent Care Services: Grandparent


Discussion Forum Index --> Tax Questions --> Child & Dependent Care Services: Grandparent

Egorz (talk|edits) said:

28 March 2009
My clients both work. They have two qualifying children. They pay the cildren's grandmother to care for the children in the grandmother's home. They want to claim this payment for the credit. My question is this: how does the grandmother report this income? She's not intending to make a profit, and she doesn't provide this "service" to anyone else. W2 doesn't apply (no w/h, ss, mc, or Futa) since she is not employed in a trade or business. Even though a 1099 isn't required, would she be considered an independent contractor required to file Schedule C? I don't think so since since she's not engaging in the activity for profit. That leaves line 21, and I lean toward this. Am I complicating this needlessly? Any thoughts?

Taxea (talk|edits) said:

28 March 2009
Yes..if she does the childcare in their home she may be subject to W-2. If she does it in her home she is a Sch C if her income exceeds her expenses. I think the "intending to make a profit" is meant to be able to take hobby expenses that exceed income, not the other way around.

Check Pub 17, it speaks to family being used for child care purposes and how it needs to be handled. You should always have the current of Pub 17 handy for basic research purposes. taxea

Egorz (talk|edits) said:

29 March 2009
Well, what if she doesn't actually make a profit? Can she then claim it on line 21 without self employment tax?

Deback (talk|edits) said:

March 29, 2009
She should report her babysitting income on Sch C and deduct her expenses on Sch C.

Egorz (talk|edits) said:

29 March 2009
It is dangerous to work while fatigued. If there is no profit, then grandma has nothing to report on line 21. I think the solution is this: if my clients want to take the child and dependent care credit then the grandmother has to file schedule C and either come up with enough expenses to produce zero profit (or even a loss) or regular and self employment tax will apply. On the other hand, my clients can forgo the credit and consider the payment to grandma to be a gift.

BusAd (talk|edits) said:

29 March 2009
Babysitting paid to a parent are not subject to FICA. So in a W-2 case, it might be better not to forgo the Dependent Care credit. Not sure about Sch. C...

Ddoshan (talk|edits) said:

30 March 2009
How much you talking about.

Egorz (talk|edits) said:

2 April 2009
$24k paid
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