Can I deduct childcare costs if I employ my estranged husband?

Q: I have been separated for 18 months and I pay my estranged husband to watch the kids while I work. Can I deduct that amount as childcare? —Susan, Haverhill

The following answer was provided by Barry Beck, CPA, Barry D Beck, CPA, PFS, DABFA.

A: If your ex watches the kids in your home you have a household employee. This means that you are required to prepare a W-2 and give copies to the IRS and your ex. There are payroll taxes on these wages. Depending on the amount paid, you maybe able to use schedule H. In addition there are state forms for withholding and unemployment taxes.

With household employees you must comply with the list above for the deduction to be sustained by the IRS. However, if your ex watches the kids outside of your home, there is no need to comply with the rules listed above. However, to obtain the child care credit, you must provide on your tax return, the name, address and social security #, or other federal ID # on your return.

The following answer was provided by Jacob Adelson, CPA, Peck Associates PC.

A: Expenses paid to a relative enabling a taxpayer to work qualify for the credit, if the relative is not a dependent or a child of the taxpayer under age 19. Therefore, payments to your husband do qualify for the credit, assuming you meet the other requirements (dependent under age 13, etc.). However, if the payments exceed $600 for the year, you must issue a 1099-Misc to your husband, with a copy to IRS. The form on which you claim this credit requires all providers' names, addresses, and I.D. numbers (i.e., SS#). This gives the IRS the ability to track whether the 1099 was filed and if the provider reported the income.