Taxes and childcare: Who's responsible for out of home care?

Question

Legally speaking, If you hire someone, like a freind or neighbor, to watch you child during the work week at their own home, who is responsible for reporting taxes and do you have to pay them minimum wage?

I know live in nannies require min wage and the employer reports/withholds taxes and that daycares can charge their own fee and take care of the tax reporting. This situation seem to be in the middle to me.

Answer 1

For child care, you can be either way, employee or independent contractor. I would say though that if you have the child care provider take care of your child in your own home that they would be your employee. If you brought your child to their home then they would be an independent contractor.

Answer 2

If you take the child outside of your home for care, the provider is not your employee. You have no payroll or income taxes to withhold or pay for the provider.

Since the child care provider is not your employee, minimum wages do not apply as you are not paying wages.

The provider must give you his tax id number so that you can take the Dependent Care Credit. The provider reports his income on his tax return, pays his own income taxes and self-employment or payroll taxes.

You report your payment on your tax return so you can get the DCC.

Answer 3

If your child is being watched in someone else's home, they are essentially running a daycare, and THEY are responsible for reporting and for taxes. You'll still have to request their social security number so you can take the child care credit if the babysitting is so you can work.