Parent employed for childcare wants SS credits

[mactoolsix]

A single - never married - parent wants to pay grandmother for childcare. Grandmother wants to pay FICA to earn SS credits.

Sch. H questions:
A - No - can not include payments to parent as both exceptions do not apply (parent was never married)
B - No - no income tax withholding
C - No - do not count payments to parents.

Thus, no Sch H.

Should a 1099-Misc be issued, then the grandmother claims this as Misc income subject to SE?

This is a bit unusual as:
1.) normally there are no payroll taxes when employing a parent in the home, and
2.) the child's parent was never married, thus Sch. H line A is NO

Mike

[Bees Knees]

You would think that it is OK to pay a tax that is not owed and thus no harm. Why should the government care if you pay too much tax? Isn't that something they would like? For example, how about not claiming all deductions so that you can increase self-employment tax and thus increase Social Security credits? However, Rev. Rul. 56-407 says all deductions must be claimed in computing self-employment tax. The reason as explained in this Rev. Rul. is given as follows:

Section 208 of the Social Security Act, as amended, provides penalties for a person who makes any false statement or representation in connection with any matter arising under the Self-Employment Contributions Act of 1954, for the purpose of obtaining or increasing benefits under the Social Security Act.

Thus, by not claiming all deductions and increasing the amount subject to the tax, you are falsely making statements or representations as to the level of Social Security benefits that you will later qualify for.

Although not specifically addressed in this Rev. Rul., the same principal applies in your case. You are falsely making a claim on a tax return that somebody is subject to Social Security tax for the sole purpose of later qualifying for Social Security benefits.

[mactoolsix]

You would think that it is OK to pay a tax that is not owed and thus no harm. Why should the government care if you pay too much tax? Isn't that something they would like? For example, how about not claiming all deductions so that you can increase self-employment tax and thus increase Social Security credits? However, Rev. Rul. 56-407 says all deductions must be claimed in computing self-employment tax. The reason as explained in this Rev. Rul. is given as follows:



Thus, by not claiming all deductions and increasing the amount subject to the tax, you are falsely making statements or representations as to the level of Social Security benefits that you will later qualify for.

Although not specifically addressed in this Rev. Rul., the same principal applies in your case. You are falsely making a claim on a tax return that somebody is subject to Social Security tax for the sole purpose of later qualifying for Social Security benefits.

Bees - I appreciate your response. To clarify . . .

If the parent qualified by: (Assume the daughter was married and then divorced)
Exception for parents. - Include the cash wages you paid
your parent for work in or around your home if both 1 and 2
below apply.

1. Your child who lived with you was under age 18 or had
a physical or mental condition that required the personal care
of an adult for at least 4 continuous weeks during the calendar
quarter in which services were performed [AND]

2. You were divorced and not remarried, a widow or widower, or married to
and living with a person whose physical or
mental condition prevented him or her from caring for the child
during that 4-week period.

Then the grandmother could have FICA applied. However, since the parent was never married, the grandmother does not qualify for SS? Seems like discrimination against G"ma because their child never married.

OR does that exception simply refer the need for a Sch H, and the grandmother would still not be eligible for FICA?

Thanks,
Mike

[mactoolsix]

How about reporting on Sch C

If the grandmother was given a 1099-Misc and reported the income as Sch C income, she would pay SE tax?

Thanks,
Mike

[Snaggletooth]

Sch C would work

Grandmother may file Schedule C regardless of whether she was indicated on Sch H, or indicated on Form 2441.

She must take all the deductions to which she would be entitled. Govt looks at ignoring deductions for purposes of increasing
Social Security income the same way it looks at ignoring deductions to maximize EIC.

[Burke]

Whose home is the child care happening? If in the grandparent's home or her daycare center, Sche C. In the daughter's home, she becomes a household employee and W-2. I don't think it an absolute requirement to use Sche H. It was initiated for the convenience of the average taxpayer to use in lieu of 941's and quarterly filings. Frankly, I was totally oblivious of the "never married" issue. And I don't understand the reasoning for it. Does anyone? The thing to be careful about here is the whole purpose of the payment. TP admits it is for SS credits; and if GM is not yet 65, EIC may come into play as well for the GM, which could offset SE taxes. In other words, she could be getting credit for future benefits and not paying any of the tax! Red flag territory.

[mactoolsix]

Whose home is the child care happening? If in the grandparent's home or her daycare center, Sche C. In the daughter's home, she becomes a household employee and W-2.

G'ma takes care of the child at the parents home - Sch. H

Frankly, I was totally oblivious of the "never married" issue. And I don't understand the reasoning for it. Does anyone?

Yep - I have done several Sch. H for divorced / parent caregivers, and never noticed the "never-married" issue either. There is probably no logic, but I don't get the intent of singling out someone just because they were never married.

Thanks to Snags & Burke for your input,
Mike

[Bees Knees]

The language used in the Schedule H instructions is similar to the language used in IRS Pub 15, page 13. The language is supported by IRC §3121(b)(3)(B).

[mactoolsix]

The language used in the Schedule H instructions is similar to the language used in IRS Pub 15, page 13. The language is supported by IRC §3121(b)(3)(B).

Bees - thanks for the code cite - I was attempting to find it for my notes. I was able to look it up and even decipher it!

Mike

[mactoolsix]

Grandmother may file Schedule C regardless of whether she was indicated on Sch H, or indicated on Form 2441.

She must take all the deductions to which she would be entitled. Govt looks at ignoring deductions for purposes of increasing
Social Security income the same way it looks at ignoring deductions to maximize EIC.

After a great deal of reading about this, I've decided the G'ma may not file a Sch. C.
Per IRS Topic 756 http://www.irs.gov/taxtopics/tc756.html
Household employees include housekeepers, maids, babysitters, gardeners, and others who work in or around your private residence as your employee.

Per Pub 926 http://www.irs.gov/publications/p926...blink100086722
The worker is your employee if you can control not only what work is done, but how it is done.

Also, there is a very good article about this: http://www.4nannytaxes.com/index.cfm...or-contractor/

Mike