Hiring Grandma to be a Nanny

130 thoughts on “Hiring Grandma to be a Nanny”

1. Hi Jan,

   I have one for you. My mother in law will be watching my son and we will be paying her $90 per week. I already know we do not need to withhold SS/Medicare/FIT as we qualify for the exception. Sometimes she will be coming to us, but other times we will be taking our son over there. As she doesn’t fall under the traditional employee definition, we will be treating her as an independent contractor. Per the IRC, we will not be issuing her a 1099 or a W2. She will be reporting the income on her Schedule C. She will also be taking a deduction for mileage on the days that she comes to us, and a deduction for the safe harbor meal allowance for daycare facilities (she qualifies under Texas state law) on the days that our son will be with her. We will be claiming the dependent care credit on our tax return for the gross amount that we will be paying for her.

   Where it gets tricky is the supplies that she will be buying and how to deduct them. For example, she will be buying things such as diapers, toys and spending money on days out. What is your view on deducting these items? My thoughts are that diapers used during the daycare period are deductible but not those on her personal time with her grandson. For days out, only expenses incurred while she is earning are deductible. For toys, supplies etc, I think a reasonable estimate of 50% would be a fair deductions as some items will be purchased on top of what she would normally buy as a grandparent due to the extra care. Any gifts she may buy are of course within her normal duties as a grandparent and are not deductible.

   Thanks in advance for your thoughts on this. All in all, I believe her net income from this will be close to $0, she is really just doing it to help us out and only wanted to be paid the equivalent amount we would spend on a daycare facility.

   Tom P

2. Hi Niki,
   Okay, you’re trying to make this tough on me aren’t you? Okay, I think I can handle it.

   First, since you will have no withholding, and aren’t required to pay FICA, then you won’t need to file a schedule H.
   I think the pre-tax dependent care benefit will need to be worked out with your employer. I think it’s a legitimate claim, but sometimes employers are tricky to deal with. But I don’t think there’s anything wrong with using your employer FSA for your live in nanny (even if it is your family member.)

   And while it might seem strange to be a schedule C provider and a wager earner at the same time–it happens all the time. Just looking at my own clients, I’ve got folks who get wages and do contract labor so yes, it is okay.

   I would caution her though–if she’s claiming expenses on her Schedule C–only claim the expenses for the contract labor kids on her return, and not any expenses from your kids. Dot the i’s cross the t’s, and she’ll be okay

   You could gift her the money you would pay her for the daycare. Lots of families do that. You would lose the benefit of the daycare tax credit, but it might not be that important to you.

   It sounds like you’re thought everything through. Whatever you decide to do I’m sure is going to work out just fine.

3. I’m so happy to see that you’re still replying to comments on this post four years later! Between this post, its comments, and the IRS site, I believe I have most of my questions answered but want to verify, and have one twist to add!

   We are considering having my mom become our live-in nanny. I know she’ll be exempt from the employment taxes, and even from Iowa unemployment taxes. I know I report her income by filing a W2 for her at the end of the year, but do I need to file Schedule H if she’s exempt and I won’t withhold her income taxes? Also, can I use the pre-tax dependent care benefit through my employer (not the credit on my tax return) to pay her, since her address is the same as mine?

   Now, the twist: would any of this change if she were to provide daycare for another family in my home while she watches my son? Can she be a self-employed daycare provider and file a Schedule C while also being a household employee/nanny at the same address, or is that not an option for her? Is it an option for me to gift her our share ($11k/yr) and she only report the daycare income? I’m actually transitioning from being an in-home daycare provider to working outside the home, so was looking at the possibility of her inheriting my daycare children, if all parties agree, to supplement her income. She was previously a daycare provider for several years, but has been working outside the home for the past 10 years.

4. Hi Adil,
   It was nice talking to you on the phone about this. I’m still posting your comments because I think they might help someone else.

   First, you still want to get an EIN number for your MIL’s W2. It’s free and it’s easy. Just go to the IRS website. http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Apply-for-an-Employer-Identification-Number-(EIN)-Online

   I believe that you’ll have to mail in the form to get a household employer EIN, but it’s still pretty easy to do.

   Since your MIL lives in your house, she is your household employee. (We call that a “live-in”.) I know I talk about people providing service in their own homes, but she’s providing the service in your home. You pay the mortgage, you own the home. She’s living with you. This is different from if she owned her own home, paid the rent or mortgage, and your brought your child to her home for care.

   The tax implications of paying your MIL for childcare– 1. She’ll probably have to file an income tax return reporting the income that she earned (what you paid her) and pay tax on that.

   Also, you may claim the child care credit as a deduction on your personal income tax return.

   Since you won’t have social security or medicare, you don’t need to worry about that on the Schedule H, but if you decide to do any withholding for her, you would report that on her your schedule H and pay it when you file your personal tax return.

   Since you need to issue a W2 for your purposes, you do need to get the EIN number.

5. Hi Jan,

   This is a very informative blog! Thanks for all the information.

   Here is my situation:

   My MIL just got her green card and is currently staying with us.
   She is taking care of my two kids while my wife and I work.
   We would like to formally pay her for this (around $1200 per month) as it will also enable her to qualify for the healthcare subsidy.

   From my reading of your blog and the various comments, this is my understanding:

   1. I can pay my MIL and issue her a W2 – no need to withhold taxes or social security/medicare. We dont need an EIN…just use my social security number.
   2. My MIL can file a regular income tax return.

   Questions:
   1. My MIL lives in our house (in a in-law suite). From a tax point of view, is she providing service in my house or hers? Does it matter?
   2. Is there any tax implication for us when we issue her a W2? I just report these as wages paid for child care?
   3. The IRS website says that I will need an EIN to issue a W2 – so which is it, do I need an EIN or dont I? If I dont, how do I issue a W2?
   4. Can we use the dependent care credit for the child care payments we make to her?

   Thanks for your help!
   -adil

6. Hi Michelle,
   First, if you hire your Mom, you don’t pay FICA so it might not help with social security. But, I guess you could waive no paying FICA just to make that happen.

   But the other thing is, if your Mom was a stay at home mom, they wasn’t she married to your Dad? Then she should qualify for benefits under him, right? I’d contact social security to find out about that.

   But if paying her as a W2 employee will make a big difference in her ability to qualify for social security, then I’d say go ahead and do it. It’s not all that hard. There’s lots of companies that will do the work for you for a reasonable rate. But really you just need to pay the social security and medicare tax at the end of the year with your tax return on a form called Schedule H.

7. My mom babysits my toddler in her home while my husband and I work full time. We are paying her $600/month and considering it as a gift since it falls under $14k and we don’t want to deal with any of the tax confusion. She was a stay-at-home mom and worked odd jobs here and there, and needs to work another 1.5 years to be eligible for social security. Is it better to continue the gifts, or would it be worth it to give her a W2 so she can be eligible for social security? How much can I expect to pay in taxes if we go the W2 route?

8. Hi Chris,
   you cannot be paid to be the nanny to your own children. And you cannot be your husband’s housekeeper. (Yes, I’m doing a load of my husband’s laundry as I write this and wonder about what I just wrote, but for tax purposes, you cannot be your husband’s household employee.)

9. The concept of household employee’s has my wheels spinning.
   Can I be my own children’s nanny or my husband’s housekeeper; my husband writing off the expense of employing me?
   If you know him well enough, you’d know he calls all the shots in our house; I wouldn’t consider us “business partners.”

10. Hi Jennifer,
    So what are you supposed to do? What are you legally responsible to do?

    Technically, you are self employed. Technically, you should report the income on a Schedule C. (Unless she files a tax return and files a Schedule H, but that’s not going to happen.)

    So, if you’re reporting this income, I would also be claiming all of my expenses against it–snacks for the kids, mileage, gifts, toys, etc.

    And that is my very technical explanation of what you need to do.

11. My tax question is tricky. I quit my real job to help my friend with her autistic children. I received 100.00 a week, roughly 5000 dollars in total. she is a single, stay at home mom. with no income other than the children’s disability benefits and child support. She does not file taxes herself,and no one else claims her children. so am I considered an employee? Even though I have no set duties, I am not told what to do. I have no set hours or schedules. And she is there 90 percent of the time so I am not babysitting. How do I report the income if she does not owe taxes or have any credits to claim herself. Will I be audited or penalized or have to pay fine for not paying my own taxes throughout the year? I have 3 children myself and I am also married filing jointly. I am completely confused as to what I am legally responsible to do. Please help.

12. Hi Sam,
    I’d still give your mom the W2. I’d also still file. When you’re filing online, there should be a box where you check that she is a family member which should solve the zero withholding issue. If you can’t efile, you can paper file. You can get the red forms from the IRS directly.

13. Hi Mrs. Roberg,
    I hired my mom to be my son’s nanny. I am not responsible for SSA, Medicare or FUTA as my household employee is my parent. I read through W-2 instructions for 2015 as I am getting ready to file it with SSA. Can I still file a W-2 even though SSA, Medicare wages are zero and I didn’t withhold federal income tax either as I want my mom to pay it when she files her?
    Another question: if SSA system gives me errors while I attempt to submit W-2 with them, can I just give my mom her W-2 and not file it with SSA?
    My assumptions that I will have issues filing are based on W-2 instructions for 2015 below (page 1 of the instructions):
    “Additionally, Forms W-2 and W-2c electronic and paper wage reports for household employers will be
    rejected under the following conditions:
    The sum of social security wages and social security
    tips is less than the minimum yearly earnings subject to
    social security and Medicare tax withholding for a
    household employee, and
    The Medicare wages and tips are less than the
    minimum yearly earnings subject to social security and
    Medicare tax withholding for a household employee.
    If the above conditions occur in an electronic wage
    report, the SSA will notify the submitter by email or postal
    mail to correct the report and resubmit it to the SSA. If the
    above conditions occur in a paper wage report, the SSA
    will notify the employer by email or postal mail to correct
    the report and resubmit it to the SSA.”

    Thank you so much for your help! Those comments are really helpful!

14. Hi Kate,
    Generally, you won’t need workman’s comp if your only employee is your mother in law. It’s a good idea to check your state’s employer website, but usually that’s not going to be a problem. Also, since you will only have one employee, you do not have to provide health insurance, she’ll be responsible for her own.
    Those aren’t crazy questions, they’re actually pretty smart.

15. Hi Jan

    I want to hire my mother in law as nanny to take care of my toddler. By reading all the post and some other research I gather these information. I need to hire her as an employee and give her W2. I don’t need to pay FICA & FUTA. But there are still some confusions. Is it up to me and my mother in law to deduct her income taxes? I think I am not required to deduct that. Also I read somewhere that employer need to get worker’s compensation. Is it necessary? And what about health insurance? Do I have to provide her health insurance or she can buy her own.

    I know these are some crazy questions but I want to go by the books.

    Thank you
    Kate

16. Hi Ben, That’s a good question. This post should help:

    http://robergtaxsolutions.com/tag/nanny-tax/

    That has the links you need to do the W2 and all that.

17. Hi Jan,

    I am new to all this so how do I even begin the process of providing my mother in law with a W2 or 1099. Is it something I have to submit a form to with IRS? Or do I just fill out the money paid on my tax return and she does the same? I’m just not familiar with what I have to do to provide a W2/1099. I am just worried it gets near tax day and I still have to fill out and submit all these forms that may delay things on my end.

    Ben

18. Hi Ben,
    Please read the response I wrote to Jackie as it pretty much applies to you too. You want to issue a W2, not a 1099.

    Also, you are not required to provide medical insurance to your mother in law.

19. Hi Jackie,
    These are really good questions. If I were a school teacher and this was a class, I’d give you an “A” for asking such smart questions.

    Let me start with the easy one about the EIN. Since you’ve hired your mother, I don’t think you have to have an EIN. If you hired someone that wasn’t family, that would be different, but with your mom she’s probably got your social security number somewhere anyway. So I’d say no, you don’t need an EIN number.

    Now for the gas card–you can only claim $6000 of child care expenses on your tax return anyway. Since you pay $400 a week, you’ve already maxed on the child tax credit expense so it won’t make a difference. Get the gas card because it’s the right thing to do, not because it’s a tax deduction.

    Now for the tougher parts–1099 or W2.

    Normally, I say it’s better for the nanny to get a W2, especially in a situation where you don’t have to withhold for social security and medicare. (Which, I believe in your situation, you won’t have to.)

    As a W2 employee: for your mom, she’s getting $400 a week. If she’s working 50 weeks out of the year, that’s $20,000. There’s no FICA withholding so all she’s paying is her actual income tax on that money.

    As a 1099 contract laborer: She still gets her $400 a week, but when she does her taxes, not only does she pay the income tax on that $20,000 she’ll have to pay self employment tax of around $3,000.

    A contract laborer can write off expenses on her tax return, but even if she writes off $10,000 worth of expenses–she’s still paying $1500 in self employment taxes before her regular taxes kick in.

    So generally, my recommendation would be to go with the W2. You can either withhold taxes now, or she can pay with her own tax return.

    But there’s one more thing to consider! Is your mom getting early social security? That can change everything. You see, if she’s receiving social security benefits and is under full retirement age, then she’s limited as to how much she’s allowed to earn on a job before she has to start paying back benefits. That’s a whole different conversation. You didn’t ask about that, and it might not be relevant. I just mention it because it would change my answer.

20. Hi Jan,

    My situation is pretty straightfwd but wanted to double check since you seem to be an expert in this area. My wife and I will be hiring my mother-in-law to be our infants nanny. In this scenario, it sounds like its as simple as filing a 1099 and me claiming whatever I paid her for the year in my tax returns? We pay her cash so all we would need are bank records? Is there a maximum of what we can claim on her?

    And for my mother in law, at the end of the year, her tax return would just be the 1099 with us? Medical insurance and stuff like is her responsibility?

21. Jan,

    I have been doing research on the above topic but am still a little confused as to what I need to do.

    My husband and I have hired my mother as our daycare provider. She watches the youngest during the day as well as drops off/picks up the older child while my husband and I are at work. Since this is her only source of income we pay her $400 a week flat rate. She has asked for a 1099 as she wants to become a business but I think we should get an EIN and issue her a W-2 at the beginning of the year as she is not a business currently.

    I guess my questions are..
    Should we get an EIN?
    Should she be given a W-2 or a 1099?
    We plan to give her a gas card to offset some of transportation expenses, is that something we can claim on our taxes?
    Should we withhold taxes from her pay now or let her pay her portion when she files and we do the same?

22. Hi Laurie,
    Good question. A parent that is providing domestic services is not subject to FICA withholding (unless you meet the exceptions above which you don’t.)

23. Suppose a minor child who is disabled is paying their parent to take care of themselves (the money is provided through a legal settlement). Does that mean we do not have to pay social security or medicare on those wages? It doesn’t appear that they fall into any of the exception categories?

24. Hi Edward,
    Hmmm, your mother in law doesn’t want you to report her income.

    Okay, here’s the thing: you can “gift” the money to grandma since it’s under $14,000 and there’s not gift tax return to file. But if you do that, then you can’t claim the deduction for child care expenses.

    Or, she could “donate” her gramma time and take care of the kids for free. (I’m guessing she’s not to keen on that.)

    So what’s the trade off? How much of a tax credit do you get versus how much more in tax does she have to pay? (Some people are actually better off taxwise if they can prove they have an income, although most aren’t.)

    Or another way to run this is: does she want bragging rights that she’s employed or does she want bragging rights that she’s on the dole from her kids? Of course, if you ask that question you might lose favorite son-in-law status (even if you’re the only one!)

    Bottom line–either report the income/claim the child care credit or make it a gift and no claiming the child care credit.

25. My wife and I pay my mother-in-law to watch our two boys.
    We pay her $600 a month for 4 day’s work total each month.
    We will have paid her approx $6,000 by year’s end.

    All work is done in our home, we pay her gas to get to our home and back, as well as meals, etc.

    My mother in law seems offended that we would consider reporting this money to the government.

    Are we legally obligated to claim this money spent on childcare? I am trying to explain to her that we do not have a legal choice and that she should not take it personal. Just curious if indeed we do need to legally claim this?

    (Personally I’d rather avoid paying family as these kind of issues come up, …but another discussion) 🙂

26. Hi Tyler,
    You don’t need to claim your parent on a Schedule H and you don’t need to pay FICA taxes, but you do put the wage paid in box one of her W2.

    You would put 0 in boxes 3, 4, 5, and 6.

27. Hi John,
    Thank you. I wish you were near us too! (Ah, by the way, we do prepare taxes for people all over the world, just so you know. But it’s nicer to have somebody local.)

    If you’re going to withhold taxes for you mom, you’re going to need to file a 941 form. That’s the employer’s withholding.

    At this stage, it might just be easier for you to give the money back to you Mom and let her use it to pay her taxes. Maybe have her file estimated tax payments in the future.

    Usually, you must have an EFTPS account to pay payroll taxes online. (You can’t mail them in.) You can pay the 941 tax at http://www.1040paytax.com but there’s a fee for that. (It’s cheaper to use a debit card than a credit card.)

    Good luck.

28. Thanks Jan.

    I set up a EIN and am in the process of doing a W2 for her right now. I realize that since she is the grandmother of the children the IRS states do not count wages in the listed publication.

    In your interpretation would that mean that I put 0 in her wages, tips, compensation block? If not, how do I indicate our relationship to the IRS so they know she falls within the wage counting exception?

    Thanks for all the help.

29. This website has been extremely helpful. I followed all the steps, withheld federal income taxes and issued my mom a W-2. But my accountant says we cannot file a Schedule H without showing that FICA/SS taxes have been taken out. And on comment #4 above, Cathy says don’t issue a Schedule H. But how do I forward the withheld funds to the IRS without a Schedule H? Is there another form I don’t know of?

    I wish you guys were local so YOU could do my taxes.

    Thank you all!

30. Hi Tyler,
    My opinion is that you should issue a W2. You can get an EIN number for free. Here’s a link: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Apply-for-an-Employer-Identification-Number-(EIN)-Online

31. Jan,

    Hope I can catch you in March.

    I have read the above article and comments and my brain now feels like oatmeal. I want to give you my specific situation and hopefully I have done the right thing.

    My mother in law is watching our twin babies full time either in our house or in her house. We are paying her 1000 a month for the service. (My wife and I are still married, the kids are under 18, not disabled etc) We are using a FSA from my wifes work to withhold to use pretax income of $5000 dollars to pay her and are claiming the Child care tax credit on our taxes.

    Before reading this article I was going to issue my mother in law a 10-99 misc. Now I am telling her to just list the income on her 10-40 line 7 with HSH written out beside it (I got this from another article).

    At this time I am not planning on issuing a W2. I put her SSN, name, address,pay amount etc on my tax return for the child care credit section, so the IRS knows we paid her.

    Am I correct in not issuing any documentation to her? If I need to issue a document, what do I need to give her to stay on the right side of the law? If not and I need to issue a W2, then what kind of penalties will I face since I don’t have a EIN or anything like that?

    Any specific help will be greatly greatly greatly appreciated.

    Thanks in advance.

32. Thank you for responding to my questions so quickly, Jan.

    I’d like to help my mom build her social security benefits, do you know what the minimum annual salary requirement is for her to earn the 4 points from Social Security? Per the comments above, you mentioned something about $1,120 per quarter, does this apply in California as well?

    Another concern I have is do I need to file an Employer ID number to pay the Federal, State, and FICA with holdings monthly or can I pay it annually during tax season? I’ll be speaking to an accountant about these concerns but I’d like a second opinion to make sure this is the best route to help my mom. She’s been searching for a job but she’s been having trouble since she doesn’t speak much English and she doesn’t have much education background. I hope my questions don’t confuse you as I’m not very experienced with income taxes. Thanks in advance for responding to me.

33. Hi Cindy,
    Your mom has a green card so she can work. One issue, if you hire her as your housekeeper, you’re not going to be able to claim her as a dependent.

    Here’s another thing, if you’re not paying into social security–I don’t think she’s getting her social security quarters. So–a different job is better, retirement wise. That’s worth a phone call to the social security office to make sure, but I’m thinking if you don’t pay social security, it wouldn’t count as a social security quarter.

    Now, you can make the conscious decision to pay the social security tax–that’s one option. Or you can pay her enough to put money into an IRA–another option.

34. Hi, Jan: My mom is currently unemployed and a dependent on my tax return, but I’d like to pay her to do housework and take care of my pets. I’m single with no children. She’s been having trouble finding a job, so I’d like to see if hiring her as a housekeeper is legal. She’s currently 56 and never worked in the US as she got her green card in 2007. I’d like her to earn the 40 credits needed to obtain benefits when she’s 66. Look forward to your answer. Thank you in advance.

35. Hi TP,
    Well you can’t really force someone to do a tax return. (Trust me, I’d love to force people to do tax returns, I’d make more money!)

    But, what you can do is issue them W2s for the income they receive from you. Now, just a few thoughts here though.

    I’m guessing that they have low incomes–otherwise you wouldn’t be paying them to do your housework. That said, there’s a spot where their Social Security income becomes taxable, so depending upon their financial situation, you might want to look at the “whole” picture before forcing the issue.

    That said, if they are low income, they might actually benefit from having a slightly higher income for some of the other tax credits. It’s just some food for thought.

    But, bottom line, issuing a W2 is probably the best way to get them to file taxes–if they receive enough income to require them to file.

    One final thing. You said you were paying them for household work–so that’s not a tax deductible business expense to you. If you hire them to work on your business, then you would have to withhold for Social Security and Medicare. (I realize you didn’t say that, I just wanted to make sure you knew that in case it was relevant.)

36. Hi Jan, I would like to pay my parents for the work they do around my house. Now, I understand that I/they don’t have to pay Social Security or Medicare tax. However, I want them to do their tax returns every year and pay their taxes on the wages they will be earning from me. How do I go about doing that?
    Really appreciate your response.
    TP

37. Hi Greg,
    Those are good questions. The rule about W2s is that you would be required to file a w2 if you had and social security or medicare withheld–you don’t. Or, if federal income WOULD have been withheld if the employee had fewer than 1 exemption–and in your case–no, she wouldn’t have any taxable income so she would have zero exemptions.
    And the FSA won’t make a difference as far as W2’s go. You may still get an EIN (it’s free) if you want to go the W2 route (for example, if she wants to put the money into an IRA and she needs to prove income.) But you’ve got no requirement there.
    Do keep good records–just to cover yourself if there ever was any question about her employment etc., but it sounds like you’ve got everything covered.
    You’re also right that you will not be filing a Schedule H.

38. Thanks for the answer and good wishes! 🙂
    One more question… Let’s say we’re not concerned with building her FICA credits (it turns out she may actually qualify for derivative benefits through her ex-husband), and we intend to use an Dependent Care FSA to pay her the maximum $5000 for the year. Any amounts above this would be considered a gift (up to the $13,000 limits).
    As I understand, we do not withhold FUTA or Income taxes because of the parent exception. Because of this, we also do not need to file Schedule H on our tax return.
    Additionally, since her recorded wages for the year will be $5000, she would not be required to file her taxes as it is under the minimum filing requirement of $9,750. If it was above this amount, she would need to file and pay income taxes on her own.
    My question is now whether I need to setup an EIN for myself as a Household Employer and process the appropriate W-2/W-3 forms, or is it sufficient to pay her and get reimbursed from our FSA without EINs, W-2s and W-3s?

    Thanks again, my head’s been spinning with the various options. I think use of an FSA is irrelevant to my question, but I wanted to give you a more complete picture.

39. Hi Greg,
    Good question. There’s no law that says you can’t withhold FICA taxes and get her started earning Social Security credits. She will need 40 credits in order to receive Social Security benefits–that’s 10 years of work. Social Security bases the retirement benefits on 35 years of work so if she’s already a grandmother, she may have a few zero years in the equation. It’s probably a good idea to get her saving for retirement as well. (To the best of her ability anyway.)
    She’ll need to earn at least $1,120 per quarter for Social Security to count her earnings as a credit. Good luck and congratulations on the baby!

40. Hi Jan,
    Great advice I see you posting on this page, very good info!
    Something I’ve been searching for a while, but could not figure out, In my case, I would like to hire my mom as a nanny, but she has never worked in the US before.
    We would like her to begin collecting SS credits each year as she is working for us as a nanny. My wife and I are married, and we have just had a baby a few months back.
    Per the rules, Grandma is exempt from SS and Medicare withholding, meaning she will not accumulate any work credits in this manner.

    While she is exempt, does this essentially mean we are not allowed to pay SS and Medicare taxes for her to build these credits, or is it possible for her to be treated as a regular employee with the standard tax arrangements as if we would hire a non-relative nanny?

41. Hi Working Mom,
    You’ve got an interesting situation, but I think you’re going to have to do one thing or the other, but not both. Here’s what I mean:

    1. If you hire your mother to be a nanny and you pay her a wage–then, as your household employee, she is not your dependent. There are two reasons for this:
    a. her wage plus her social security would amount to more than half of the amount of support you provide for her (because you cannot count the wage you pay her as support–it’s a wage
    b. you aren’t allowed to claim a household employee as a dependent

    So, either way, that’s not going to work.

    2. If you don’t hire your mother, but she comes to live with you and you provide more than half of her support (but she just happens to babysit) then you could possibly claim her as a dependent–but you’ll have to check with your employer to determine if they’d let you put her on your insurance then.

42. Hi Jan,

    I’d like to hire my mom to be my live-in nanny during the week. She would quit her current job and we would provide all of her income (except social security). Can we claim her as a dependent, since we’d be a)supporting her during the week, in my home and b)paying for her weekend expenses? We’d also like to use this arrangement to provide her with healthcare benefits through my employer. Is this arrangement legal? Is there any reason it would be less beneficial than paying her and having her file taxes on her own behalf?

43. Hi Kelly,
    I’m sorry. First for being confusing and second for getting back to you so late.

    If your mom cares for a child under the age of 18 (or disabled) and you are divorced or widowed (or your spouse is disabled)–then you have to pay social security tax.

    Yes, that’s got to be right up there with the stupidest tax rules ever.

    Anyway, if you are married or single (never married) – then you don’t have to pay the social security tax.

    Pardon me for jumping to conclusions. When your original post mentioned paying social security tax, I jumped to the conclusion that you had to pay social security tax. But you were just being normal–because it would be the normal thing to ask. I was thinking of geeky tax stuff–not normal stuff. (Occupational hazard.)

    How would the IRS know if your mom needed to pay social security tax or not? I have no idea how they would figure that out. Bottom line, the responsibility would be on you, the employer. And you would keep records. And you would be right.

44. Jan,

    Confused. Above it says “First, when you hire your parent for domestic work (including child care, housekeeping, etc.) your parent is exempt from social security and medicare withholding. ” then you say I should pay social security.

45. Hi Kelly,
    If you want to pay your mom’s social security tax (which is the right way to do it) then you need to file a schedule H. Read this post for some help: http://robergtaxsolutions.com/2011/11/nanny-tax-what-to-do-about-your-household-employees/

46. If you file a w2 how does the IRS know whether the grandma owes SS and Medicare taxes?

    I have been told to have my mom report it on Schedule C and miscellaneous income. I’m so confused!

    I claim the child care tax credit so I want sure she files correctly since I put her social security down on my taxes.

    Where should she claim it?
    Help!

47. Thank you. Since I have posted this, I have done some investigating and this is what I have found to be true. Please correct me if I am wrong.

    There are so many misconceptions out there about how to treat a grandparent as a nanny, legally. Most people think that in order for the parent to be able to claim a tax credit for what they pay grandma, that they must issue the care giver (grandparent) a 1099. This is because they are under the impression that just because you DO NOT collect FICA, that you cannot issue them a W2.

    Issuing a 1099 does not make sense at all to me. First off, they are not considered self employed per the IRS. Second, if the employer is exempt from paying FICA or FUTA for the employee, because of the fact that the employee is exempt from any of that money to be credited towards their own social security or medicare or from covering them for unemployment benefits (because of the relationship with the employer) then why would the grandparent be suddenly responsible for self employment taxes which is 100% tax liability for FICA? The money is still coming from their child. You are correct; she is still gramma.

    This is what the proper procedure is (according to the IRS agent I just spent over an hour combined holding for and speaking to): I cannot issue her a 1099, since she is not an independent contractor. Even though she is the grandparent, I would still have to treat her as a household employee, but without either of us being liable for withholding or paying anything for SS and Medicare taxes. I also checked Federal and State unemployment taxes for my state (FL) and would not be liable for that either since it would not cover her employment with us anyway. I would keep record all of her earnings, and still issue her a W2 the following year, without filing a schedule H. She would only be liable for federal income tax, and it is optional if she wants me to withhold for her or not. If I withhold, I am responsible for paying it to the IRS for her. If she does not want it withheld, she can file her taxes with the W2 I provide and she can pay her Fed Income taxes at that time.

    OR, she can choose how much to set aside so she can put that money in a savings account and accrue interest until tax time and pay what she owes and enjoy the rest.

    I will then still be able to use my FSA dependent care expense account to be reimbursed the wages I pay her, up to $5,000 and/or claim the dependent care credit – depending on my income/tax liability.

48. Hi Cathy,
    Your mother-in-law is still Gramma. Same rules apply. If you give her a 1099 she will have to report the income as self employment and pay self employment tax. anything over $400 must be reported to the IRS.
    You can claim the tax credit for dependent care if she is reporting the income.

49. One more thing. If I cannot treat her as a household employee, how will she report the income on her tax return? Will she need a 1099? Would she be responsible for the self employment tax? And how much can she make before she has to report it? Also, could I claim the tax credit for dependent care, AS WELL as use an FSA? This is all so confusing. PLEASE HELP!

50. What about if I am hiring my Mother In Law to provide child care in my home?
    I am still married of course, to her son, but I would be the one paying her. I was already planning to have her as a household employee until I started to investigate further. She was going to quit her job to work for me so I was also going to pay FUTA, since I won’t need her forever!
    However, WE (my husband and I) would be filing a joint return.
    How would that work?

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