Ned and Marge's Taxes
Ned and Marge Childcare Transactions and Taxation
Ned, Marge
Thank you for your concern for accurately reporting taxes for this previous tax year. In the following response, your specific cases have been considered.
As Ned has been paid in the amount of $95,000 by Marge for childcare for Maggie, under IRS regulations, if Ned babysits for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to him. Under this section, it requires that Ned pay self-employment taxes on the received monies for childcare. This means that he will be required to pay Social Security and Medicare taxes in the amount of 15.3%. This will be reported on Schedule SE Form 1040. Minus the 15.3% taxation, Ned's income would be $80,465, however, half of the tax should be eliminated in determining his adjusted gross income, which means at a 7.65% tax rate, Ned should report $87,732 as his adjusted gross income.
Ned should also be aware of Form W-10, Dependent Care Provider's Identification and Certification for the purpose of claiming that for tax purposes, his name, address and taxpayer identification are correct. He should hold onto this form for his records and be...
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