Child and Dependent Care Credit issues

[Eimaise]

In 2017, my wife and I paid $6,449 to 21 different babysitters throughout the year to watch our two kids at our home while we worked.

When I plugged in this number to TurboTax, it showed that I would get a $1,200 credit (20% of $6,000 which is the max you can claim for 2 dependents).

I don't think any of these 21 people are claiming their babysitting income on their taxes. I don't have SSN's for any of them either.

Is there any way to work around this legally and still get this credit? It bugs me that we're basically giving them money that they're not planning to have to pay taxes on and therefore we miss our on the nice credit.

[Bmac]

Why 21 different babysitters? Wouldn’t it be much easier logistically (and solve your tax conundrum) if you hired a single part time nanny?

[Eimaise]

That is a good idea. How much do nanny's cost per hour? Never thought about that.

My wife works only part time and at varying times each week. We have lots of friends who are willing to babysit for us, so we just have a shared Google spreadsheet and people sign up for babysitting shifts. It's pretty easy logistically actually.

[ENT Doc]

See the IRS instruction for this credit. There is a section covering situations where you don't have a SSN.

[Bmac]

It likely depends quite a bit on where you live. I suspect anywhere from $10-20/hr. More in SF or NYC. I have had success using a site called Care.com. It is probably somewhat more difficult to find someone if the hours are highly variable from day to day and week to week. So for your situation it may be challenging. If your spouse could have a more consistent maybe daycare a couple of days/week would be an option.

[MPMD]

i don't think you have to anything "on the books" until you pay a domestic employee more than $2k.

 

[jfoxcpacfp]

To get the credit, you will have to report the payments in one way or another. If you don't have the SSNs or EINs and the sitters refuse to provide, then you can try entering as much contact info as you have and type "refused to provide" in the blank for the tax ID. We have done this for 1099s but not to get the child tax credit so I don't know how successful you will be. However, telling a payee how you plan to report the payment is sometimes enough to get them to cough up their TIN.

It is your responsibility to get the SSN and address before making payment for anyone for whom you are supposed to report to the IRS. For this year, you can download and use a W9 form for all the sitters.

MPMD wrote:

i don’t think you have to anything “on the books” until you pay a domestic employee more than $2k.

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If you paid at least $1,900 to a household employee in 2017, you must report those wages for FICA and pay your share as the employer. You also must pay FUTA if you paid household wages of at least $1,000/quarter. This has nothing to do with the child tax credit, though.

[Craigy]

You "miss out on the nice credit" but like Johanna said above, you likely missed out on paying FICA FUTA and SUTA (and an accountant to calculate this for you) for all 21 of your employees this year.      :P

[Eimaise]

Thanks for all the helpful feedback guys. These are all friends and close acquaintances and none of them individually got to over $1,900 in the year (or $1,000 in a quarter) so they didn't meet that threshold. Most of these people are young folks with no other sources of income. I'd likely have no problem getting their SSN's if I asked.

So if I get their SSN's and report the money I paid them on my tax return (in order to get the credit), will they have to also report that same income on their respective tax returns in order for me the credit?

If I just list it on mine, but they don't on theirs, will the IRS come knocking on their door?

[jfoxcpacfp]

Eimaise wrote:

So if I get their SSN’s and report the money I paid them on my tax return (in order to get the credit), will they have to also report that same income on their respective tax returns in order for me the credit?

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They will not have to report in order for you to get the credit. Just report enough payments to get maximum credit.

Eimaise wrote:

If I just list it on mine, but they don’t on theirs, will the IRS come knocking on their door?

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Possibly. If the amounts are as low as it sounds, then possibly not. For example, if someone earns < $400 for sch C income, they do not have to pay FICA taxes and they wouldn't owe federal income tax, either. State tax is another story - maybe, maybe not.

[Eimaise]

Thanks for your help. I feel so ignorant of all these tax laws. Help me understand what seems like a discrepancy to me though:

According to this website -- https://www.hrblock.com/tax-center/income/other-income/how-much-do-you-have-to-make-to-file-taxes/ -- you have to make $10,400 to file taxes if you're under 65 and filing as a single which is how the majority of where these babysitters would fall.

But then your comment about schedule C and this website -- https://www.hrblock.com/tax-center/income/other-income/reporting-babysitting-income/ -- make it sound that only $400 is the threshold for reporting income.

TurboTax also says: "[if you] earned more than $400 at babysitting, you are considered to be self-employed as far as the IRS is concerned, for all income earned in that business. So be aware that you will pay BOTH the employee side and the employer side (Self-Employment Tax) of the taxes on that income, and ONLY on that income."

So most of these people made more than $400 dollars but none of them likely made over $10,400 total in the 2017.

Is it just a difference between "reporting" and actually paying taxes... i.e. the government wants to know if you make >$400 dollars but won't charge you any taxes unless you make $10,400 or more? The quote from TurboTax above would seem to go against this theory however.

[jfoxcpacfp]

Eimaise wrote:

Thanks for your help. I feel so ignorant of all these tax laws. Help me understand what seems like a discrepancy to me though: According to this website — https://www.hrblock.com/tax-center/income/other-income/how-much-do-you-have-to-make-to-file-taxes/ — you have to make $10,400 to file taxes if you’re under 65 and filing as a single which is how the majority of where these babysitters would fall.

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That is correct (for 2017) but it is different for SE (Self-Employment) or "FICA" taxes. The above refers to income taxes only. Taxpayers who make at least $400 of SE income are liable for FICA .

Eimaise wrote:

But then your comment about schedule C and this website — https://www.hrblock.com/tax-center/income/other-income/reporting-babysitting-income/ — make it sound that only $400 is the threshold for reporting income.

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Again, this refers to SE (aka FICA), not "income" taxes. And the $400 threshold is not for "reporting" income but for "owing" FICA taxes. For example, if you have $350 of SE income and $20k of wages, you owe income taxes on $20,350 of income, but no FICA taxes.

Eimaise wrote:

Is it just a difference between “reporting” and actually paying taxes… i.e. the government wants to know if you make >$400 dollars but won’t charge you any taxes unless you make $10,400 or more?

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There are many rules about reporting, but that doesn't change the liability. For example, someone who pays a subcontractor $500 for services does not have to report that payment to the government. That does not relieve the subcontractor of the duty to pay taxes on the $500 of income.