Q. This refers to your recent article, Turn nondeductible support into child care credit. Wouldn’t the credit be outweighed by the income tax owed by the relative for watching the children? J.M., CPA, Pittsburgh
A. Possibly. The article explains how a couple might pay a relative, such as an elderly parent, for baby-sitting while the parents work. It is true that the baby-sitting payments would be treated as taxable income. Thus, this might cause income tax complications for the relative. However, without knowing various other factors (e.g., capital losses and personal deductions), it’s not clear what the relative’s annual tax liability would be.
Tip: Our example involves a hypothetical set of facts. Consider all the tax implications pertaining to your personal situation.
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