Can I Claim Child Care Expenses Paid to My Mother?
Understand the tax rules for claiming child care expenses paid to a relative, including eligibility, documentation requirements, and potential tax implications.
Paying a family member to watch your child can be a convenient and trusted option, but when tax season arrives, you may wonder if those payments qualify for a deduction or credit. The IRS allows certain child care expenses to be claimed, but specific rules determine whether payments to a relative—such as your mother—meet the requirements.
Understanding these guidelines is essential to avoid mistakes that could lead to denied claims or unexpected tax consequences.
Criteria for Claiming Child Care Costs
To qualify for the Child and Dependent Care Credit, expenses must be necessary for the parent or guardian to work or seek employment. If child care is occasional or for personal convenience, it does not meet IRS requirements. The taxpayer must also have earned income during the year.
The child must be under 13 or, if older, physically or mentally incapable of self-care. Payments to a spouse, the child’s parent, or a dependent of the taxpayer do not qualify. If your mother is your dependent, you cannot claim payments made to her.
Eligible expenses include payments to babysitters, daycare centers, and in-home caregivers. The IRS requires the caregiver’s name, address, and Taxpayer Identification Number (TIN) when filing. Payments made in cash without records may not be accepted.
Paying a Relative: Key Points
When hiring a family member for child care, the arrangement must be structured as a legitimate employment relationship. Payments must be for actual caregiving services, not gifts or financial support. A written agreement outlining responsibilities, hours worked, and compensation strengthens the legitimacy of the claim. Without clear terms, the IRS may disallow the deduction.
The caregiver must report the income received. If your mother earns more than $2,600 in 2024 from child care, she may be considered a household employee, requiring you to withhold and pay Social Security and Medicare taxes. If she provides care for multiple families, she may be classified as self-employed and responsible for self-employment taxes. Misclassifying the working relationship can lead to penalties and back taxes.
Legal Documentation
Proper records are necessary to substantiate child care expenses. A written agreement should specify the scope of services, payment terms, and frequency of care. While not legally required, a signed contract helps establish that the payments are for services rather than informal support.
Receipts and payment records are essential. The IRS may request proof of payments, so using checks, bank transfers, or electronic payment platforms provides a verifiable paper trail. Cash payments without documentation can be difficult to prove. Keeping a log of payment dates, amounts, and services performed further supports the claim.
The caregiver’s Taxpayer Identification Number (TIN) must be reported on Form 2441 when filing taxes. If the caregiver refuses to provide a TIN or Social Security Number, the IRS may deny the credit. If the caregiver does not have a TIN, they must apply for one using Form W-7 or SS-5.
Impacts for the Person Providing Care
Receiving payment for child care services is taxable income and must be reported. Earnings may be subject to self-employment tax, which includes Social Security and Medicare contributions at a combined rate of 15.3%. If the caregiver is classified as a household employee, the payer may be responsible for payroll taxes.
Earnings from child care can affect eligibility for income-based benefits. If the caregiver receives Social Security, Supplemental Security Income (SSI), or Medicaid, additional income could reduce or disqualify them from these programs. SSI benefits have strict income limits, and exceeding them could lead to reduced payments or loss of eligibility. Medicaid eligibility is also tied to income thresholds, meaning reported earnings could impact access to healthcare assistance.
Common Filing Errors
Mistakes when claiming child care expenses can lead to delays, audits, or denied deductions. Common errors include failing to provide the caregiver’s Taxpayer Identification Number (TIN) or misreporting the amount paid. The IRS requires accurate details, and discrepancies between reported expenses and payment records can trigger scrutiny. Parents should ensure that the caregiver’s name, address, and TIN match official records to prevent processing issues.
Another frequent mistake is claiming expenses that do not qualify under IRS guidelines. Payments for occasional babysitting or personal errands do not meet the criteria. Additionally, some taxpayers mistakenly claim expenses paid to a dependent relative, which is not allowed. Keeping thorough documentation, including receipts and proof that the care was necessary for work, helps avoid these issues. Filing errors can result in lost credits or penalties, making careful record-keeping essential.