L.A. asks from Kew Gardens, NY on February 07, 2011
Dependant Care Account
I'm just back to work after having our darling boy. Human Resources is plying me for elections including whether I want to contribute to a dependant care account.
I work full time, my husband is in law school. Day care is being provided by my parents a neighbor and my husband. My parents and the neighbor are all retired and collecting social security.
According to the administrator, I can set aside up to $5K for dependant care. Its a use it or loose it fund, whereby any amounts not drawn down will be lost to me.
1. Can I employ my parents, neighbor and husband?
2. Do I have to pay them minimum wage?
3. Do I have to pay employer taxes?
4. Is the "pay" taxable for them?
5. Do I get reimbursed the entire amount?
6. How much is a reasonable amount to pay them for their services?
7. If I use the FSA, do I give up dependant credits for my son on our joint tax return?
8. How much can my parents/ neighbor be paid without jeapordizing their social security payments.
9. I suspect that any amount I "pay" my parents will be returned to us in the form of a gift to our son. Is this going to raise eyebrows? Should we have them put it in his savings account, or his college savings account?
Thanks a bunch for your help.
Are there other questions I need to consider.
Also, if you have any funny stories about dependant care they would be good to hear too.
K.P. answers from New York on February 07, 2011
You can only do this if you the provider is "claiming" the income on their taxes. When you submit your reimbursement forms, they will ask for either the provider's Tax ID or SSN and the government will be looking for that income on their returns!
I do believe that $5000 is the max you can claim in childcare expenses, so you would be "giving up" the credits.
Yes, this will raise eyebrows on several levels. If your parents are being paid and you are using an FSA, then they need to claim the income on their taxes. If they then elect to "regift" that money- they need to open an account for your son in their name as a "trust account".
Really, are they charging you? If you're not paying for childcare, this is kind of irrelevant. Just know that your providers could easily be audited if you are claiming something that isn't true.
3 moms found this helpful
J.C. answers from New York on February 07, 2011
If you are paying your parents and using an FSA dependant care account, you MUST provide a taxpayer ID to get reimbursed for what you put in. In your case, since you are not actually paying your parents and I am sure they don't want to be in a different tax bracket by being paid, then the answer to your HR dept is no than you!
BTW - a dependent care account only pays out what you put into it. A healthcare FSA is use it or lose it/get it upfront.
1 mom found this helpful
S.Y. answers from Chicago on February 08, 2011
1) you can not employe husband and I do not think parents.
2) no requirements on what you pay them.
3) you are not responible for paying their taxes
4) Yes definately taxable for them.
5) Yes you get reimbursed the entire amount
6) Negotiate it out.
8) I believe that you can make up to about 12,000 before you start loosing social security
9) They can gift him 10k per year
Here are some links for you.
G.B. answers from Oklahoma City on February 07, 2011
They need to find out from SS how much maoney they can make before they lose benefits. I think my hubby can earn $600 a month but a friend of mine, also on SSDI, cannot make a penny of earned income or she loses her medicaid.
I think any earned income is taxable, you'd certainly want to have the benefit of claiming child care on your taxes. You'd be paying them as babysitters and babysitters are independant contractors. They pay their own SS and taxes. If you emply them as nanies then it becomes you are the employer and should pay some SS for them. But an accountant can better answer that question.
You can employ anyone you want. It is up to your employers to say if this situation meets their criteria. I think it is a very nice program if it benefits your whole family and your neighbor.
H.L. answers from New York on February 08, 2011
As far as I know senior can make any amount of money they want and still get their social securit benefits. I don't think they monitor it that closely it's just a way of saving
money on your taxes at the end of the year. Good luck!
B.W. answers from Rochester on February 09, 2011
as many have stated, the income for the providers must be reported to the IRS. Additionally, you will have to present receipts for the monies paid in order to be reimbursed from your FSA account.
M.T. answers from New York on February 08, 2011
You can only claim a family member and be reimbursed from your flexible spending account if your caregiver is reporting this income on their taxes. This can affect their social security and other things, so they may not want that. If they are not going to report this as taxable income and pay the taxes on it, then you cannot use your FSA to reimburse you for paying them. You can employ whomever you want to watch your child and pay them off the books, but then you cant' use your FSA for reimbursement.
R.M. answers from New York on February 08, 2011
Personally, I would not consider a use it or lose it type of account. I would be suspicious as to why your HR department is pushing it, too.Set up a college savings acct for you child, like a 529 account and skip the rigamarole of paying your parents and worrying about their reported income just to have come back to you anyway. Grandparents can also make deposits to this account.