Child Care Tax Credit and 1099 Misc?

Hi. Question is for my sis. She recently had a child. She and her husband would like to take the child daycare tax credit--she paid around $3000 in 2007 to a family member for day care. She paid cash (I know, I know). Can she claim the tax credit? Also does she need to 1099 the day care provider? Btw, the day care provider worked out of her own home--not my sis's.

Child Care Tax Credit and 1099 Misc?
Yes, she can claim the tax credit but the tax form will require her to input the tax id number of the person or business that received the income and they will be expected to pay taxes on the money they received from you and if they don't, they will eventually get a letter from the IRS or it could trigger an audit.
Reply:Maybe...


First, the child and dependent care credit only applies if they're paid so the parents can work or at least look for work. Paying for weekend babysitting so they can go dancing, for example, doesn't work. Second, this family member to whom the child care pymts were made cannot be someone that sis and/or her husband could claim as their dependent. Third, when claiming the credit on Form 2441, if you file the Form 1040, they'll need to list the name, address and SSN (or EIN if they're in the child care business). This means, of course, that the family member who received the $3000 will want to ensure they report this income on their tax return or the IRS will have questions. The amt of credit varies depending on ones gross income, from a low of 20% to a high of 35%. As for giving a 1099 to the provider, the answer is no. Only if one employs help in your own home might you be liable for social security and unemployment taxes. Again, the provider still must report the $3K income on his/her 2007 taxes.
Reply:She will need the care givers SSN, they cross referance to make sure the credit your sister is taken is taxed as income by the family member. She does not need a 1099 as the caregiver simply puts the income as "other income".