 Can
Mom be both a dependent and baby sitter?
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 Dear
Tax Talk,
I used to claim my mother as my dependent on
my tax return. She didn't work. Now, I have a baby. I was wondering
whether or not I can hire my mother as my babysitter and how to
claim her on my tax return.
Your answer will be appreciated.
Thank you.
--Tracy
 Dear
Tracy,
Baby-sitting expenses are only beneficial taxwise
as child care expenses that allow you to work. In other words, unless
you're eligible to claim a credit for child care expenses, you wouldn't
benefit taxwise from payments to a baby sitter.
The child care credit (Form
2441) is a tax credit for payments made, by you, to a care provider
for your dependent which allows you to work, look for work, or study,
in the case of a married couple. In order to claim the credit, either
you or your spouse has to have earned income (i.e., wages or self-employment
income). Also, payments for child care services have to be made
to someone whom you do not claim as a dependent on your tax return.
In addition, if the services are rendered in your home, the payments
would be subject to household employment taxes (Schedule
H).
Since you're eligible to claim an exemption for your
mother, you would not be allowed a credit for payments made to her
for child care. Even if you were not eligible to claim an exemption
for your mother, it might not make economic sense to put her on
the payroll as you would incur household employment taxes, which
could exceed the amount of the child care credit.
For example if your adjusted gross income exceeds
$43,000, the maximum credit is $600, which is 20 percent of up to
$3,000 in eligible expenses. The household employment taxes on $3,000
would be at least $483. In addition, the loss of the exemption could
cost you another $300 to $500 or more in tax benefits, depending
on your income and deductions. As you can see, it's better for Mom
to earn her keep for free.
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