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Question for the Money Doctors

Question submitted on Nov 29, 2021.

Question

My daughter and son-in-law employed me as their nanny, after much arguing they paid me some by check, some by gifting. The past year no checks only gifting. They said it is just easier. I said there must be more to it, perhaps some benefit to them as now I have no reportable income. Is there some benefit to them in this arrangement or am I being paranoid?
Thank you

Answer

If you are being paid for services rendered, they should pay you, probably as an employee.  This would result in income taxes, social security, and Medicare being withheld from your paycheck and your daughter also matching the social security and medicare tax that is withheld.  This requires significantly more paperwork.

Depending on several factors, they might pay you as an independent contractor, in which case you would be responsible for paying any income tax as well as self employment tax (social security and Medicare).  This usually should be done in quarterly installments.

Either way, these expenses would likely qualify as child care expenses resulting in you daughter and son-in-law getting a tax credit based on how much they paid in the child care expenses.

To avoid the record keeping and administrative hassle of filing reports and making payments to the IRS, they have treated these payments to you as a gift rather than a payment for services rendered.  This is not technically correct, but makes their life easier because they avoid filing reports and paying taxes to the IRS and it may make your life easier as well since you are not paying income or self employment taxes on gifts received.


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