18 answers

Taxes and Babysitter

We have a child care provider for our daughter who watches her for 2 days of the week for about 9hrs/day. Since this is our first child, we have learned many things while working with a child care provider. My question is, we are not sure how to work with the taxes on this. We currently have a dependent care expense account through my husbands work, so we utilize that. Now with our taxes we are not sure what to do as far as how to claim it. I am not sure if the provider is claimingg it as income or not, or if she has to. Any advice would be great!

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She doesnt have to claim anything over 5k/year especially if she isnt licensed. If you dont have her SS# you cant claim it anyway. If you claimed it, you would be charged far more I can promise you that.

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I think this is something you should have discussed with her ahead of time. I am licensed to do home daycare and I give a sheet at tax time b/c I claim the money as income. This is factored into my rate. In order for you to claim it I think you need her social security #. If you claim it then she has to pay taxes on it. I know some people so childcare as "cash". meaning they don't claim it and you don't either. I am sure this is not exactly "allowed", but it is an important thing that should have been discussed as it would affect the rate she charges!

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She doesnt have to claim anything over 5k/year especially if she isnt licensed. If you dont have her SS# you cant claim it anyway. If you claimed it, you would be charged far more I can promise you that.

1 mom found this helpful

When I went through Turbotax they ask questions in such a straight forward way. DO you pay someone to care for your child while you work or attend school? :YES How much did you pay in 2010: What is that persons name, address and social. That's it. In another area they ask questions about HSAs and benefit accounts. Just answer the questions honestly and it does the rest for you.

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it doesn't matter at all what she is planning on doing, you have a legal right to claim that expense on your taxes and you should do so. She should be paying her taxes and if she isn't she should get in BIG trouble. I know this sounds mean, but those of us home daycare providers that do claim taxes get kinda mad at those that don't! It's our legal and moral right to claim our income and pay any taxes due.
There are LOTS of deductions for providers and there is no excuse for her not to claim the income.

Edited to add - I am assuming that your daughter goes to her house, if she comes to your house then YOU are responsible for the taxes like the Nanny said

Also no matter how much your provider (if out of the home assumed from now on) made, she MUST CLAIM ALL INCOME. There is no such thing as making less then X means you don't have to claim income!! Regardless of if she gives you the social security or EIN number you can still claim the amount you paid to her as a child care expense.

She will have no way of knowing who gave the IRS her name and address, but the IRS will be kind to YOU if you report her, as in HUGE bonus - and she will have HUGE penalties...
Yea, I really hate tax cheaters...

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Legally she needs to claim it as income. Ask her for her social security #.

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Yikes! Have you submitted your FSA forms? The forms ask for the name, address and EIN or SSN of the caregiver. You should also have needed to provide either invoices from her with all of that information, the dates of service and amount paid OR she would have needed to sign the caregiver certification box each time you submit your expenses for reimbursement. This should be a big clue to her that you are claiming your expenses and that they will expect to see corresponding income from her. If you haven't submitted your FSA claims yet for 2010, you may have an uncomfortable conversation ahead of you. This is the kind of thing that should be spelled out in a contract, but now you know.

There will be instructions when you fill out your taxes that will ask you to enter the amount contributed to the FSA from your husband's W-2 (box 10 or something). Because you have only one child, the $5,000 you contributed to the FSA exceeds the $3,000 childcare tax credit so you won't actually take the tax credit, which is a separate form. We actually do both an FSA for $5,000 and then claim an additional $1,000 in the childcare tax credit because we have 2 kids and our tax credit maxes out at $6,000. So because we do both, I know that we provide detailed info in our return (EIN, name and address of caregiver plus name of child covered, which ties back to the info you give when you claim your child as a dependent elsewhere in the form) but you may not have to do that because all of that info is already in your reimbursement forms.

This of course opens up another can of worms, which is that if your sitter watches your child in your home and you paid her more than $1700 last year, she is a household employee and you need to pay social security, medicare and unemployment taxes (FICA and FUTA, collectively known as "the nanny tax") as well as possibly state taxes - this is schedule H on your tax return. If she operates as a daycare provider in her own home but doesn't run it as a home daycare business, you have to send her a 1099-MISC form and check the "nonemployee compensation" box. These are how she will claim her income on her own tax returns.

After all that, now you know why some people just pay cash and don't claim their childcare expenses on their taxes :)

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If she is independently employed (like a consultant or like a piano teacher or someone who owns their own daycare business), you are not responsible for withholding taxes for her. She is required to withhold her own earnings to pay taxes. She is not your employee...you are paying for services rendered. If she claims the payments you gave her on her taxes, you can claim the amount you paid her as well for the child-care deduction--if you don't earn too much as a household income. If she does consider her childcare services as a business, she's actually the one who would have to provide the earnings statement to you by Jan 31st--it is her daycare business that you are using her services.

I'm not 100% of the specifics of this next part but this is just what I remember from what our accountant told us when my son was in an in-home daycare a few years ago: you'd need her Social Security # to put on your taxes so that your deduction amount can be tied to her income report. and I highly recommend getting a professional to prepare your taxes this first time so that you know what they're doing.

I'm about to go through this, too, as I will be the primary daycare for my sister's child shortly. And I want her to be able to get the tax deduction. So, I will be providing her statements, etc, even though she's the one that's paying me. It's my "business" that I am responsible for all taxes associated with my earnings. And I'll be chatting with our accountant (my uncle!) to make sure we do this properly.

You are going to be in a pickle here. You should have been withholding taxes from her paycheck if you are going to claim her and you should have issued her tax documents in January. You will most likely have to pay fines because the goverment likes their share every pay period. Talk to your tax advisor on this one. It may be cheaper to walk away from your dependent care funds and take this as a lesson learned. If your tax documents do not match her tax documents it will spell trouble (your may not get audited this year but, the IRS gets to go back!).

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