Author Topic: Childcare FSA for "babysitting"-then requires sitter to file earnings with IRS?  (Read 1728 times)

thegeebees

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Hi all, any insight appreciated. We have an opportunity to use an FSA for childcare expenses and actually need it for the first time. I'm estimating we'll only need about $1,500 this year. Our babysitter is 16 and hasn't needed to file taxes yet. I want to use the FSA since it says you can use it for babysitting specifically and that I can make a home-made receipt to be able to file.

Question is, does this mean my 16 year old babysitter will have to file taxes on it? I don't think her parents will be happy about that if so.

Thanks for any help!

swinginbeef

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our FSA reimbursement form requires the tax id number of the care provider, cluing the IRS in on your sitter's income.

I'm a red panda

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Hi all, any insight appreciated. We have an opportunity to use an FSA for childcare expenses and actually need it for the first time. I'm estimating we'll only need about $1,500 this year. Our babysitter is 16 and hasn't needed to file taxes yet. I want to use the FSA since it says you can use it for babysitting specifically and that I can make a home-made receipt to be able to file.

Question is, does this mean my 16 year old babysitter will have to file taxes on it? I don't think her parents will be happy about that if so.

Thanks for any help!

Yes, if you filed FSA, she would need to file taxes.

Legally though, if your babysitter is making that much income- she's SUPPOSED to file taxes anyway.  Of course, most kids don't file taxes for cash jobs.

jezebel

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our FSA reimbursement form requires the tax id number of the care provider, cluing the IRS in on your sitter's income.

Same here, we need to submit the tax id or SSN of the daycare provider.  So it will be reported if you use the FSA.  We do not use our FSA funds for our middle-school aged babysitter, so it's not an issue.  I don't know the tax issues for the 16 year old, but I don't see why her parents would be mad.  I had a regular job with paycheck at 17 and had to pay taxes.  That's life, no sense in pretending otherwise.


jezebel

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Hi all, any insight appreciated. We have an opportunity to use an FSA for childcare expenses and actually need it for the first time. I'm estimating we'll only need about $1,500 this year. Our babysitter is 16 and hasn't needed to file taxes yet. I want to use the FSA since it says you can use it for babysitting specifically and that I can make a home-made receipt to be able to file.

Question is, does this mean my 16 year old babysitter will have to file taxes on it? I don't think her parents will be happy about that if so.

Thanks for any help!

Yes, if you filed FSA, she would need to file taxes.

Legally though, if your babysitter is making that much income- she's SUPPOSED to file taxes anyway.
  Of course, most kids don't file taxes for cash jobs.

I'm not sure that this is true.  There is a threshold level of income that she'd need to meet before having to file a return as a dependent - it might be higher than 1,500.

I'm a red panda

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Hi all, any insight appreciated. We have an opportunity to use an FSA for childcare expenses and actually need it for the first time. I'm estimating we'll only need about $1,500 this year. Our babysitter is 16 and hasn't needed to file taxes yet. I want to use the FSA since it says you can use it for babysitting specifically and that I can make a home-made receipt to be able to file.

Question is, does this mean my 16 year old babysitter will have to file taxes on it? I don't think her parents will be happy about that if so.

Thanks for any help!

Yes, if you filed FSA, she would need to file taxes.

Legally though, if your babysitter is making that much income- she's SUPPOSED to file taxes anyway.
  Of course, most kids don't file taxes for cash jobs.

I'm not sure that this is true.  There is a threshold level of income that she'd need to meet before having to file a return as a dependent - it might be higher than 1,500.
I thought earned income was $1,050 and self employment was $400 regardless of being a dependent.

jezebel

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Hi all, any insight appreciated. We have an opportunity to use an FSA for childcare expenses and actually need it for the first time. I'm estimating we'll only need about $1,500 this year. Our babysitter is 16 and hasn't needed to file taxes yet. I want to use the FSA since it says you can use it for babysitting specifically and that I can make a home-made receipt to be able to file.

Question is, does this mean my 16 year old babysitter will have to file taxes on it? I don't think her parents will be happy about that if so.

Thanks for any help!

Yes, if you filed FSA, she would need to file taxes.

Legally though, if your babysitter is making that much income- she's SUPPOSED to file taxes anyway.
  Of course, most kids don't file taxes for cash jobs.

I'm not sure that this is true.  There is a threshold level of income that she'd need to meet before having to file a return as a dependent - it might be higher than 1,500.
I thought earned income was $1,050 and self employment was $400 regardless of being a dependent.

I don't know what it is, which is why I phrased it like that.  The OP can certainly look it up.

MDM

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I thought earned income was $1,050 and self employment was $400 regardless of being a dependent.
See 2017 Publication 17 - p17--2017.pdf for
Single dependents under age 65 and not blind:
You must file a return if any of the following apply.
•Your unearned income was more than $1,050.
•Your earned income was more than $6,350.
•Your gross income was more than the larger of:
•$1,050, or
•Your earned income (up to $6,000) plus $350.

Mr. Metal Mustache

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What if you paid her $1,000 (staying under $1050 gross income) from the FSA and once that limit was reached switch over to cash? Then provided no other jobs that she's working technically she won't hit the limit. Then would that get you around needing her tax id or SSN?
« Last Edit: April 12, 2018, 05:31:17 AM by Mr. Metal Mustache »

Cpa Cat

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This is a hard one to answer.

While we're required to disclose the SSN for the child care credit or FSA, does the IRS match it against anything? In theory, that's the purpose, but in practice, it doesn't appear to be part of the IRS' matching process currently.

The problem is, we can't tell kids NOT to report their income. Legally, if they meet the requirements to file a tax return, they are required to report their income regardless of how or if it's reported.

Taylor3386

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If you have a reliable babysitter that you trust with your kids, I wouldn’t rock that boat by trying to rope them into taxes at 16. I babysat a lot when I was a teenager. I doubt I would have taken jobs from families that would have required me to file - there are just too many other cash in hand babysitting jobs out there to have to worry about the formality of taxes.

We pay our babysitter $15/hr maybe 10 hours a month. If I told her she needed to report it she would probably only make about $10/hr after taxes. It’s hard to get a teenager to give up their Friday or Saturday nights for $10/hr. So if you go the reporting route with her be prepared to either lose her as a sitter, or pay her more to make it worth her while.

MidWestLove

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Pay her a little more per hour?

Taxes would be trivial (if at all present), earned income is valuable (earning records as well as opportunity to fund Roth at age 16), win-win-win.  Not sure why tax avoidance tail is wagging this dog..

CareCPA

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Since this topic came back to life:

You would report her ID number for administrative purposes, but she's under the filing threshold for federal taxes. There may be state ramifications depending on where you live.

I'm also unsure (like Cpa Cat) if the IRS is actually matching these yet. I'm assuming they're moving towards matching everything they can, but their system is still incredibly old. I think there are quite a few updates before they get to the point where they're matching as much as the general public thinks they already do.

jpdx

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Isn't your babysitter technically a household employee? It a ridiculous requirement so very few people actually hire their sitter on payroll, but I assume you would need to in order to take advantage of the FSA or child care tax credits.

ontheway2

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This will be more than simply filing and paying federal payroll taxes as it is not W-2 income. You will either need to be her employer and pay FICA, or she will be self-employed and pay those taxes for herself.

Is it a babysitting gig while you are both at work/school, or is this more of a date-night babysitter?  I'm not used to daily childcare being referred to as a babysitter.

Jrr85

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Pay her a little more per hour?

Taxes would be trivial (if at all present), earned income is valuable (earning records as well as opportunity to fund Roth at age 16), win-win-win.  Not sure why tax avoidance tail is wagging this dog..

Just FICA would hit over 15% if she did any amount of babysitting.  I don't think that's insignificant. 

MidWestLove

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"Just FICA would hit over 15% if she did any amount of babysitting.  I don't think that's insignificant.  "

sure, you are entitled to your opinion.


the babysitter wants X amount 'clean' (either under the table without earning record or after all taxes).
the OP wants the service and also wants to save on taxes (including FICA)

the amounts are trivial
- the difference to the girl is <10% (15.6/2 plus any state taxes which she is unlikely to pay anyway at that low income level)
- the total amounts to OP are almost nothing (we are not talking 100 hours a week for $200/hour fees being considered)

Either OP sees the value in her service and willing to pay up to use FSA or does not see the value in the service to pay up (hire someone else), or pay without using FSA... the attempts to double dip (let me get the service without paying taxes so I can get it cheaper but then count it officially so I subtract it from my taxes) is more hilarious than anything. Pick one and move with it. Definitely not angst worthy..

ontheway2

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"Just FICA would hit over 15% if she did any amount of babysitting.  I don't think that's insignificant.  "

sure, you are entitled to your opinion.


the babysitter wants X amount 'clean' (either under the table without earning record or after all taxes).
the OP wants the service and also wants to save on taxes (including FICA)

the amounts are trivial
- the difference to the girl is <10% (15.6/2 plus any state taxes which she is unlikely to pay anyway at that low income level)
- the total amounts to OP are almost nothing (we are not talking 100 hours a week for $200/hour fees being considered)

Either OP sees the value in her service and willing to pay up to use FSA or does not see the value in the service to pay up (hire someone else), or pay without using FSA... the attempts to double dip (let me get the service without paying taxes so I can get it cheaper but then count it officially so I subtract it from my taxes) is more hilarious than anything. Pick one and move with it. Definitely not angst worthy..

Why would the babysitter only pay half of the FICA? Are you saying the OP should account for her as a household employee and pay the other half? Sounds like the OP would have to pay the full 15.6% through increases wages or taxes for the babysitter to net the same. Pretty much eats up any tax savings there.
The earning record is rather irrelevant for the amount and time we are talking about, assuming the babysitter doesn't go the MMM route and works on the books for 30 years.  Either way though, 1k/year will not really make a difference with SS calculations

ixtap

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What if you paid her $1,000 (staying under $1050 gross income) from the FSA and once that limit was reached switch over to cash? Then provided no other jobs that she's working technically she won't hit the limit. Then would that get you around needing her tax id or SSN?

Are you suggesting getting a minor imvved in tax fraud?

Jrr85

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"Just FICA would hit over 15% if she did any amount of babysitting.  I don't think that's insignificant.  "

sure, you are entitled to your opinion.


the babysitter wants X amount 'clean' (either under the table without earning record or after all taxes).
the OP wants the service and also wants to save on taxes (including FICA)

the amounts are trivial
- the difference to the girl is <10% (15.6/2 plus any state taxes which she is unlikely to pay anyway at that low income level)
  Unless their market for babysitters is atypical, I suspect the person who wants it over the table is going to pay for all the taxes.  If they babysitter doesn't want to mess with taxes, then she presumably can go find another person who will pay her under the table.  If the babysitter wants it over the table, the parents aren't just going to fork over an extra 15%, unless the babysitter underpriced herself to begin with (or unless the money is immaterial to the parents regardless)[/quote] 


- the total amounts to OP are almost nothing (we are not talking 100 hours a week for $200/hour fees being considered)
  Well, 15% of $1500 is $225.  If the OP is in the 22% tax bracket, the FSA is worth $444.75 on federal taxes.  So if everything is done above board, you're talking about a net $219.75 savings in exchange for a decent amount of paperwork. 

Either OP sees the value in her service and willing to pay up to use FSA or does not see the value in the service to pay up (hire someone else), or pay without using FSA... the attempts to double dip (let me get the service without paying taxes so I can get it cheaper but then count it officially so I subtract it from my taxes) is more hilarious than anything. Pick one and move with it. Definitely not angst worthy.
  Not angst worthy and the savings available probably don't justify the hassle.  But if you were looking at using the full $5k, you're looking at $1482.5 in savings. 

MidWestLove

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" Unless their market for babysitters is atypical, I suspect the person who wants it over the table is going to pay for all the taxes"

Yes, that is exactly what OP was asking. I want to get tax benefit from FSA, and want to pay the babysitter with on the books money (so I can deduct it). However I am too cheap to raise the raise  and want the babysitter to take the haircut so I can have my tax savings. Well, raise the rate, find another babysitter, or forget about FSA.  I think it was mentioned in the first few posts. Not sure what is the point of the rest of the discussion...

alanB

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Not sure whether a consensus was reached here... From 2017 Schedule H:
Quote
Do I need to pay household employment taxes for 2017? If you have a household
employee, you need to withhold and pay social security and Medicare taxes if you
paid cash wages of $2,000 or more in 2017 to any one household employee. See Did
you have a household employee?
and the Line A instructions for more information.
You need to pay federal unemployment tax if you paid total cash wages of $1,000 or
more in any calendar quarter of 2016 or 2017 to household employees. See the Part II.
Federal Unemployment (FUTA) Tax
instructions for more information
Sounds like you don't have to pay FICA on $1500.  So does anyone know how you would report the payment?  Still W-2 with no FICA or withholding?  1099-MISC?  I know you have to file Form 2441, on which you report the SSN and amount paid, maybe that is enough?