My sis has been watching my son this year. I've paid her a total of $3,020 for the babysitting and this is all she has made all year. I've kept track of the money I've paid her by week for the entire year. I didn't claim what I paid her last year but told her I would be doing so this year because it is a larger amount. I haven't witheld any taxes from her. I want to know if she is going to be screwed by having to claim that amount at years end or will she not have to pay that much considering it was only 3,000? She is going to be married filing jointly w/2 dependents in Michigan Also will my giving her the spreadsheet I kept track of it on to take to her accountant be enough or do I need to give her a form of some kind?
2007-01-02 15:17:38 · 5 answers · asked by HLP 2 in Business & Finance ➔ Taxes ➔ Other - Taxes
Legally, she has to claim it, pay any income taxes due on it, plus 15.3% self-employment tax which would be $462 in addition to the income tax. The amount of income tax will depend on how much income she and her husband have together, since they're filing jointly.
When you put it on your tax return to take the child care credit, you'll have to put her social security number to show who you paid it to.
You should give her a 1099 showing the amount you paid her. You'd also send a copy of that to the IRS - and yes, an accountant would be a good idea for that, at least the first year so you can see how it's done.
2007-01-02 17:28:03 · answer #1 · answered by Judy 7 · 0⤊ 0⤋
I assume your sister is over 18. She will have to pay self-employment tax (about 15%) on the babysitting money, in addition to having your payments to her added to her taxable income.
I assume you paid her as an independent contractor, just like a daycare center. So you didn't have to take taxes out.
She won't have to pay a huge amount, maybe nothing extra. I would think of it this way: Her income from babysitting is less than her personal exemption, so no big deal. Giving her a letter stating what you paid her is enough.
This income may increase her own tax credits, depending on the rest of her income. So no guilt is called for, you both benefit from this arrangement.
2007-01-02 18:03:50 · answer #2 · answered by ninasgramma 7 · 0⤊ 0⤋
She will get screwed. It's income that has to show up on her taxes that she hasn't paid tax on all year. They will take it out of her then. I THINK it's 25% but I'm not sure. And the additional income could put her in a higher tax bracket and even more could be taken out. She will need a statement with your name and social security # on it. But there are strict rules on the earned income tax credit. Great-Grandparents can be paid for childcare and you can claim it but grandparents and parents can't. You should check first and see if you are even eligble for the credit before she files.
2007-01-02 15:22:36 · answer #3 · answered by Chula 4 · 0⤊ 0⤋
If you claim daycare expenses, than she must report it as income. She is considered self employed. She would have to file a Schedule C, and pay self employment taxes. She could deduct any expenses if she has any. If she worked inside your home, you should have filed a Schedule H and paid taxes on her wages. If she is giving you a discount on daycare expenses, than it is probably better to not claim it.
2007-01-02 15:58:01 · answer #4 · answered by chelle8079 2 · 0⤊ 0⤋
It all depends on the tax bracket she and her husband are in. Keep your records for 10 years. Her husband can and should report it to their accountant. It might make a difference if she were to file separately. Have them run it by their accountant.
2007-01-02 15:28:20 · answer #5 · answered by Zelda Hunter 7 · 0⤊ 0⤋