Help Me With a Question About Child Care Income

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Dear Brass Tax Presentations,

I need your expertise on this because I only have one other client in this similar situation. Grandmother goes to her daughter’s home to care for her grandchildren 2-3 times a week. She gets paid by Child Development Asso Inc. It’s only $7900. She received a 1099-NEC. GM is not in the business of child care. I know this income is taxable. Is it subject to Self-employment taxes? I know the situation would be different if the GC would be dropped off at GM house. Also, would you file a Sch C or just report it as other income?

Thanks for your help.

From Brass Tax Presentations

Ask yourself “Is Grandma operating a trade or business”?

To be a trade or business, two factors must be met:

1. Activity is regular and continuous, and
2. Activity is engaged in with a primarily for-profit motive

So, while yes we would say the activity is regular and continuous, we would probably say that Grandma’s primary purpose for engaging in the activity is to spend time with her grandchildren and not to turn a profit.

If Grandma does not meet both requirements to be a trade or business, then this activity will be reported as a hobby on Schedule 1 Line 8j, Activity not engaged in for profit income.

I used to recommend putting it on a schedule C, backing it out, and then putting it on Schedule 1, Line 8z… but since they added Schedule 1 Line 8j, they will match a 1099-NEC to that line. So just put it directly on Schedule 1, Line 8j. No self-employment tax if it’s not a trade or business.

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