Son/DIL in cash flow problem owing to new g'daughter w/ some medical issues and lower income from less dil work time, etc., ...
Med coverage is excellent so the medical bills are mostly taken care of so no real need there. Was considering offering to cover the daycare costs for a while to allow to return to work earlier but felt more comfortable w/ direct payment to provider rather than just direct gifting to remove temptation.
Is there any tax ramification one could see for either us paying the provider or them (like would that otherwise be a deductible expense for them) or anything else am overlooking?
There is, of course, the alternative of simply doing some gifting; just thought I'd see if were any thoughts.
Regardless of the payee listed on the check, the daycare payments are a gift to your son and daughter in law. Because you say "us" my guess is that you are married and your spouse agrees with the financial help. You can give to your son and DIL a total of $52,000 this year, including the daycare payments. That's $13K from you to your son and DIL for $26K. Then your spouse can do the same. You don't necessarily have to write four separate checks, just two would be enough. Then on a gift tax return, you opt to split the gifts.
The daycare wouldn't be deductible for you. Your son and his wife may be able to have the money withheld from their pay so they can save taxes. You should check with them on that.
I understand it's still gifting either way; the point is that I think there's better likelihood of dollars not being frittered if the gifting went directly to a regular expense rather than simply into their account.
I understand they wouldn't be deductible expense; are they if they were paying them themselves (I never paid child care; wasn't sure if they are or not--if were and they lose the deduction might be a reason to find some other choice of thing to pay.) Or, since its considered gifting and is on their behalf for their benefit is it still ok for them to deduct if it is?
Not sure what the suggestion regarding pay deduction would be in reference to? You thinking of employer-provided daycare as opposed to private (which this is) or is there some way to use pretax $$ a la medical accounts for daycare? If the latter, that would definitely be _a_good_thing_ (tm) :) and would explore it.
I'm exploring new territory for me here; I'm willing to try to help for a while but don't really want to just hand over cash if can figure out alternatives that don't have other serious disadvantages. I'm not figuring there's an tax advantage for us likely to be possibly gained altho if there is something there would be no sense in not considering it as an option simply owing to not being aware of the possibility. OTOH, I don't want in particular to do something that's definitely detrimental to them and they're definitely even less knowledgeable than I even though he works in back office of a large financial investment services company it's all related to records management and processing for corporate 401(k) plans, etc., nothing that helps much w/ the personal management, unfortunately.
Lastly, there's no way what we do decide to do is going to meet the $50k/yr threshold; that would definitely simply be enabling. My understanding was there is no need/reason to file gift return to even be filed unless exceeded the limit anyway.
Your followup post indicates there are no gift tax implications. On the income tax side, you also correctly note that there is no income tax benefit to you.
If you give them the money for child care and they pay it they get a tax credit for a portion of the expense. Some employers offer a benefit package which includes a pre-tax deduction for child care. If one (or both) of them took advantage of this and you replaced the withheld money with gifts they would get the tax benefit. Other than these two approaches, there's no tax consequence to anyone.
Details about the employer benefit route are in Publications 503 and
To make sure am on same page--if we were to pay the child care provider directly I infer you're saying it would cost them the tax credit which would otherwise get so there would be a (perhaps slight, perhaps not; I don't know the limitations of the credit magnitude otomh here) so that would be a cost of doing it that way to not provide them w/ additional cash directly but to simply remove an particular expense from the equation (which structuring is really the only reason for asking the question to begin with--as noted it seemed more likely to lead to better usage).
If you pay directly, they don't have an expense to deduct. Same as if you paid my property tax directly. If they use a DCA (Dependent care account) which they need to sign up for each year, they can show the receipts for reimbursement of their own withheld money, but that's on the edge as well, as they'll have a receipt, but not a canceled check. There's a cost of "removing the temptation" which appears your goal. There's only so much you can do to help, I'd suggest you gift them the funds each month and just check in to see they are paying the daycare bill.
It turns out the child care tax credit is based on a maximum cost of $3000 for one child (5000 if through an employer child care reimbursement plan) and 6000 for more than one child.
So if you gifted them not more than those amounts and sent the remainder of the costs directly to the child care provider, you allow themn to claim the maximum allowed credit and not have to gift them more than the 3000/5000/6000 amounts.
Art (I'm asking, not sure of this) - Wouldn't a direct payment still count as gift? I thought only School and Medical direct pay avoids gift limit issues. Or are you just referencing the amount that helps them get their tax deduction, beyond that won't help them on their return?
Precisely, and I knew the gifting would be gifting -- just wanted to be at least explore the possibilities to ensure hadn't either overlooked something or done something detrimental inadvertently.
Appreciate the input; I'll check on whether there's a dependent care option available to either/both or not; they do have and use the medical.
Thanks for the input...guess basically it's bite the bullet and keep in touch enough to hope they make wise(r) decisions going forward in digging their out altho in their defense their applecart was sorta' upset on them but they didn't do enough proactively soon enough in reaction it appears...as so often, didn't hear there was a problem until it has now reached near crisis proportions.
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