Depending on the study you look at, anywhere between 61% to 74% of grandparents babysit for their grown children. I’m one of them. Although I live 200+ miles away from my two grandkids, I try to get them for a week or so during the summer. On special occassions, now that I’m retired, I go to their house to watch them. For example, this week, I’m kidsitting my 11 and 8 year old grandkids at their house – getting them on and off the school bus, fixing dinner, helping with homework, playing with them and etc – while the parents are away on a much deserved adult only trip.
There are many documented benefits to utilizing grandparents to watch grandkids. Among them may be reduced risks of alzheimers; increased brain power, and lowered possibilities of depression. In addition, the grandkids may also benefit from loving care provided by family members, interaction with an older generation and reduced risk of depression in the children too.
Not only are there health and social benefits, but there can also be financial benefits.
Although using relatives to kid sit can be fraught with stress, anxiety and cause for family arguments, many families do it successfully.
Parents may be nervous about grandparents following the rules they want used, spoiling the kids too much, giving them the wrong kinds of food or keeping them safe in this digital world. Grandparents might wonder if their own grown kids are taking advantage of them, be worried about keeping up with youngsters or the extra expense they incur with food, activities and etc. Both may wonder about reciprocity – should the grandparents be paid to watch the kids?
The jury is out as to whether you should pay your parent to watch your children. Some grandparents are appalled at the idea of accepting payment, others appreciate it. Some grown offspring offer money, others take parents out to dinner or buy extra gifts for them.
If you do decide to offer payment (or ask for it), there may be financial benefits for parents, grandparents and possibly the children as well.
Parents may get a break on child care expenses, after all, most grandparents won’t charge market price for their services. Parents may also be eligible for tax deductions or credits for child care services. Grandparents, obviously, would have the benefit of extra income. If they don’t need that extra income for living expenses, and if tax treatment is set up correctly, the grandparent may be able to use the money to contribute to retirement savings. If the grandparents don’t need additional retirement savings, they may decide to gift the money forward to the grandchildren for college or other child related expenses.
Although I’m not charging for my services this week (or any other for that matter), if my kids chose to pay me for watching their kids, I would most likely be able to make a contribution to one of my retirement accounts, which is already allocated to go to grandkids on my death. It is an account which currently can be kept tax free, for the life of the grandchild receiving it from my estate (a Roth IRA). This kind of tax free account can really help in funding the next generation.
Prior to agreeing on payment terms, you should discuss the situation with all adult parties involved and you should investigate any tax implications with a professional. In the US, if you pay a grandparent for kid sitting in your home for more than a certain number of hours, the grandparent is considered an employee of yours. You then become responsible to pay medicare and social security taxes for that employee, among other things. On the other hand, if your parent watches the kids in their home, they may be considered an independent contractor instead of an employee. The tax laws can be complex, and ever changing.
Would you pay your parents to watch your kids?
If you live in the US, here are a few resources discussing the ‘Nanny Tax’.
Forbes article: Do I Have to Pay ‘Nanny Tax’ on a Babysitter?
Market Watch: How the Taxman Handles Child Care
Tax tips on childcare expenses