Biological father babysits child so mom can work

[Greta]

He is unemployed, recently incarcerated. She stopped sending their child to daycare, and now pays him. Can this be counted for Form 2441?

[jeffmcpa2010]

A couple of questions come to mind. (Not sure if they are relevant just information I would want to know if I was preparing the return.)

Does he live with her and the child.?

What is the custody situation (from a legal standpoint)?

Is he OK with having the payments to him reported to the IRS (As surely someday they will get around to matching the 2441 information of payee's (Name, SSN Amount ) to the see if the payee has properly reported the income.

Probably a couple of others but those just popped into my head.

If the answers are 1. no and 3. yes I would think you could claim it on the 2441, but probably not for any time that a custody agreement could be interpreted as the child being with him as part of the custody agreement. Again, quick off the top thoughts.

[garman22]

I completely agree with @jeffmcpa2010. My first fear is they know 2021 rules....

[Greta]

Excellent questions. There was never a custody agreement. No marriage. Father was incarcerated for 2 years. Mother took him into her home out of kindness. So they are now living together. He would pay taxes on this income. But taxwise he would be better off anyway with the new increased EIC. Hmm.

[jeffmcpa2010]

If I had this situation, I would probably tell her that "I CANNOT" prepare this return claiming the Child Care Credit for those payments, she can then decide if she want's me to continue.

I haven't done enough research to show you a reg, or other authorative document, just 44 years of doing this tells me that if something does not seam right or reasonable, I am not doing it, and to me this does not seem right or reasonable. I just sleep better that way.

[IRonMaN]

Sometimes, it just isn't the lutefisk that smells bad.  I wouldn't lust to be doing that return either.

[qbteachmt]

You don't babysit your own child; it's called parenting.

That would not be payment for child care.

She's already paying taxes on the money she earns, so why would they want to turn this into taxable income for him to report, eating away into the funds? The more they run the money in circles, the less they end up with.

Look at Figure A:

https://www.irs.gov/publications/p503#en_US_2021_publink1000203267

"Were your payments made to your spouse or the parent of your qualifying person who is your qualifying child and under age 13?"

[BobKamman]

@qbteachmt  I would also look at the question above that, 

"Were your payments made to someone you or your spouse could
claim as a dependent?"

[qbteachmt]

Bob, that question above would be, for instance, paying your teenage daughter to babysit; or, grandma lives with you as a dependent.

Imagine if we all paid our spouse for services rendered.

[dkh]

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@qbteachmt wrote:

Bob, that question above would be, for instance, paying your teenage daughter to babysit; or, grandma lives with you as a dependent.

Imagine if we all paid our spouse for services rendered.

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[Greta]

"Technically" she is not paying a spouse or a relative. Yes, she pays taxes on her wage. Half of what she pays daycare is a credit back to her (only in 2021). He can't get a job elsewhere. So she pays him instead of daycare. He claims his income and the EIC covers his social security tax. Technically this is legal, even if it smells. This was never an issue before because rules in 2021 changed as regards Form 2441 and EIC. The MFJ status is unhelpful to clients at both the low and high income end. Over my 40 yrs as a tax preparer, I have advised several clients not to marry.

[qbteachmt · Accepted solution]

"or the parent of your qualifying person"

[Greta]

Ah! That ends this discussion! Thanks!