Tax Guru – Ker$tetter Letter

Q:

Subject: tax question – child care

 

Hello,

 

If possible, could you please answer the following question for me regarding paying someone for child care…

I would like to employ my Mom to take care of our future child; one benefit I saw from this I can maximize my employer’s child care spending account to $5000, which is tax deductible.  I am in a higher tax bracket and my Mom is in a lower tax bracket. What IRS relatated items would I have to do to pay someone for services, ie: would I have to get a tax number, or pay into Social Security for her, or pay into worker’s compensation, would I have to set up a company, etc

 

Thank you very much,

A:

The best thing would probably be if your mother set up her own child care business that could be paid for watching your kid, as well as others.  There are many different ways in which that business can be structured (sole proprietorship, C or S corporation); so your mother will need to consult with her personal professional tax advisor to determine the best strategy for her unique situation.  

Kerry Kerstetter