Today TaxMama hears from Jason in the TaxQuips Forum who wants to get it right. Let me summarize his issue – and you can read the details, here. He has hired Grandma to provide child-care in his home. He’s pretty sure that he is not required to treat her as an employee, according to various IRS publications. If not, then how does Grandma report the income on her tax return?
The reason I am addressing this to you and not Jason is, this turned into a discussion, where I started out being wrong. Read the details here. And a correction to a previous question, here. Bill Porter, of Pride Tax Preparation in Minnesota corrected me, since he specializes in Child-Care tax returns. I bring this up because it’s so easy to get confused, especially when IRS uses double negatives in their pubs, as Bill points out.
What is the final answer? Here goes:
Re-reading things again, slowly,… Bill and Jason are right. You don’t have to put her on payroll. So, if you don’t put her on payroll, how do you report the income? Is this self-employment income? She is working. She is getting paid for working.
Here is what IRS says about babysitting:
Babysitting. If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you
In other words – self-employment income.
Again: Fees received for babysitting, housecleaning and lawn cutting are all examples of taxable income, even if each client paid less than $600 for the year. Someone who repairs computers in his or her spare time needs to report all monies earned as self-employment income even if no one person paid more than $600 for repairs.
So, Issue a 1099-MISC for non-employee compensation. From there, you know how to file Grandma’s return.
And remember, you can find answers to all kinds of questions about hiring family, and other tax issues, free. Where? Where else? At www.TaxMama.com.[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]
Please post all Comments and Replies in the new TaxQuips Forum .