Hi I'm actually asking for my mom. She's been my daycare provider since I went back to work, and in '06 I paid her $400. She's a homemaker, my father works and they have 3 dependants. I want to use the child care credit on my taxes, but will they come after her for not filing if she doesn't? It's only $80 for me so if it cost her more than that, I'd rather just skip it.
2007-03-11 07:43:15 · 11 answers · asked by CJ'sMomma 2 in Business & Finance ➔ Taxes ➔ Other - Taxes
Yes, your parents need to claim that income on their joint return. What it will cost them will depend upon their tax situation. Since it was $400 or more, there may be Self-Employment tax on the net profit form the activity. Income tax will also be due.
Unless they are willing to reveal their total financial picture to you, there's no way for you to know what the tax impact on them will be. It could be anything from $0 to as much as $200.
Your folks are legally obligated to report the income so it doesn't matter whether you claim the credit or not. Given that, you should claim the credit since not doing so will not affect their legal tax liability and will save you a few $$$ in the bargain.
Contrary to what a mis-informed poster said, you CAN claim the credit for money paid to a relative as long as the relative is not YOUR dependent or a parent of the child who the care was provided for.
2007-03-11 09:01:51 · answer #1 · answered by Bostonian In MO 7 · 1⤊ 0⤋
My understanding would be that if you claim the credit, then your mother will have to claim the income.
Assuming that she and your father file jointly, your mom would not have to file a separate return, but the $400 would be added into their joint tax return. If their taxable income is in the 15% bracket ($15,100-$61,300 of taxable income), then that will cost them $60 extra in federal taxes plus probably some amount in state taxes depending on what state you are in. If their taxable income is more than $61,300, then I think they'd likely owe more than you'd get back.
If for some reason your parents file separately (which is most likely not in their best interest), then I think the $400 is low enough that your mother will not owe any tax (unless she has enough other income from interest or dividends to put her over the limit of who must file).
Contrary to a previous I answer, I believe that you CAN deduct payments to relatives as long as the relative is not 1) your spouse, 2) your child or someone you claim as a dependent, and 3) not the child's parent.
2007-03-11 07:51:41 · answer #2 · answered by Dave W 6 · 0⤊ 1⤋
If she files a joint return with your dad, then yes, she is legally required to claim it. That's whether you take a child care credit for the amount or not.
If she is not otherwise going to file, she would still have to file - the cutoff is $400 or more of gross self-employment income. Her self-employment tax on this amount would be less than the $80 that you mention claiming the credit will save you.
2007-03-11 08:33:37 · answer #3 · answered by Judy 7 · 1⤊ 0⤋
Self-employed individuals, sole-proprietors, independent contractors and persons who have net earnings of $400 or more are required to pay self-employment tax by filing Schedule SE.
It may be a hard decision for you but the tax code is relatively clear on this issue.
2007-03-11 07:52:23 · answer #4 · answered by KLM45 1 · 1⤊ 0⤋
In order for you to take the credit the person providing the daycare cannot be a relative. Refer to IRS pub17 for more info but it looks like you wont be able to take the child care credit but your mom will still have to claim the income. Good luck.
2007-03-11 07:48:06 · answer #5 · answered by cinsingl83 3 · 0⤊ 1⤋
She would be considered "self employed" and the limit on reporting self employment is anything OVER $400. So she is in luck! You can claim the child care credit. And depending on your father's income it may actully be beneficial for her to claim the 400 because of EIC. EIC runs on a bell curve, for two dependents (two dependents are all you get EIC for ) the ideal income is between 11,300 and 16,000.
2007-03-11 07:57:26 · answer #6 · answered by Amber 3 · 0⤊ 1⤋
If her MAXIMUM TOTAL income was less than $3,400, there is no need for her to file. If your mom is filing joint with her husband, I really don't think the $400 would amount to much increase at all to the tax due.
2007-03-11 07:50:20 · answer #7 · answered by Anonymous · 0⤊ 2⤋
If it's $80 fpr you then you must have submitted paperwork to the IRS, like a 1099 for her. In that case, it's too late. But if you didn't then it can be your little secret.
2007-03-11 07:53:01 · answer #8 · answered by Anonymous · 0⤊ 1⤋
If it's her only income it's tax-free (I think that $1200/year is the cut-off).
2007-03-11 07:51:32 · answer #9 · answered by contemplating 5 · 0⤊ 1⤋
No Problem, Skip it!
2007-03-11 07:46:25 · answer #10 · answered by Stephen B 2 · 0⤊ 1⤋