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We signed up for a full dependent care FSA ($5000) through my wife's employer at the end of last year knowing we'd need child care this year in some form.

This year we've found a local older woman who watches our child part time in our home about 15 hours a week. She is married and otherwise retired I believe, but does this for some spare money. (Don't fully know her financial situation though.) We do not have her Social Security Number, and the general understanding is that she may not be reporting this money either.

I wasn't aware the dependent care FSA submission through an employer required knowing the babysitter's Social Security Number, just an informal invoice/receipt and name/address of babysitter.

Is it required now for us to get her SSN? If she has it will she have a large tax notice due if she then fails to report her income?

Is it possible not to include the SSN, but her name/address? And if that's the case, will they still track her down if she doesn't report the income?

I'm very worried about damaging the relationship w/ this babysitter, or losing her over this issue, but obviously don't want to lose the dependent care FSA money either.

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    Have you considered your tax problems in this situation... care.com/homepay/nanny-tax-guide – DJohnM Sep 6 '14 at 17:54
  • No one seems to have addressed that for 1040 child care tax credit you do not NEED to have a SSN if you express reasonable diligence in obtaining it, though you do need to identify the person by name/address. It is unclear if similar is allowed for FSA, and if it is equivalent to just providing the SSN. Am curious if this is true. – Miro Sep 7 '14 at 13:35
  • @Miro - fair enough, but that wasn't the question. If you take the child care credit, and they penalize both you and the nanny, will you be better or worse off? – JTP - Apologise to Monica Sep 7 '14 at 21:57
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Is it possible not to include the SSN, but her name/address?

No. Similar to how the hospitals now get you a social security number for your newborn, so you can leave with a little crying tax deduction, the IRS has cracked down on FSA reimbursements. They expect to be able to follow the money from your tax deduction to a nanny/sitter's income. Your last line is the choice you face, and User58220's warning shouldn't be ignored.

If she has it will she have a large tax notice due if she then fails to report her income?

She will need to declare the income. The tax due depends on many factors. Not reporting it can result in penalties and prosecution.

Is it possible not to include the SSN, but her name/address?

The last I dealt with this, the employer required the SSN of the provider. No exceptions.

And if that's the case, will they still track her down if she doesn't report the income?

You are now asking about the risk of getting caught, after already sharing that you're operating outside of the law. Sorry, I can't answer this one.

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