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.

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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!).

IF your Babysitter is Licensed, you can claim for child care Tax credits.
If she is NOT licensed nor has a business license, and then you claim your childcare expenses, she can get in trouble with the IRS. Because it means she is not claiming her income.
But you HAVE to ask her.

Do you pay her via cash or check?

Here are a couple of links on this:
http://taxes.about.com/od/deductionscredits/qt/child_care...
http://www.fool.com/personal-finance/taxes/2007/02/13/let...

Jennifer did a fantastic job explaining below. I just wanted to add that when my daughter was in elementary school we used the optional after care provided by the school district. Every month when I would submit for reimbursment through my dependent care account through work,I had to use their tax ID and a signature for it to work.

You've already got lots of advice, but not sure if this was covered. I have a part time babysitter. She gets a pay stub from me each week which I show the deductions (federal, Social Security, Medicare and State taxes). She had to fill out a federal and state form identifying how many deductions she wanted to claim.

Monthly I pay the federal charges through the EFTPS system. Quarterly, a 940 form is filled that shows how much has been taken out (both employer paid and employee deducted).

In January, I complete a W2 form for her. Then by 2/28, I submit a W3 with a copy of the W2 for her.

When I met with my accountant, he recommended using the dependent savings account as opposed to having this as an item to expense on the taxes. Bottom line, you can't take both, but only use one. I'm out of luck for this year, but next year, I will use the dependent care account instead of having what I paid out as a line item deduction.

Good luck. It seems like it can be confusing. Talk with an accountant to get it straightened out, then you can do it on your own. I do this all through an excel spreadsheet.

--A.

As a former sitter my advice would be don't ask her for her ssn number especially for only 2 days of the week. Its not worth losing a good sitter over, and she will feel insulted. Believe me I have many friends who do full time daycare, and they all think the parents are horrible who do this. A sitter would discuss this in the beginning if she has a tax i.d. to give you, otherwise forget it and be glad you are getting a good break instead of having to take your child to a public facility.

I was wondering if you ever got this worked out. Here is my situation, which also might give you some answers even though this is from more than a year ago.

You can only claim up to 3,000 if you use the child care tax credit and don't use your Dependent benefits with your employer. The problem that many face here is that the sitter, if private, will sometimes either not claim taxes, or in my case be stubborn about handing out their SSN each time you want reimbursed thru your dependent care money with employer. The benefit to the dependent care savings is that you can claim up to 5,000.

So, in my case since I have both options, here is what I plan on doing. I total around 3800.00 per year for child care, so only 3,000 can be claimed federally thru the child care tax benefit, which I will use. But the other 800, I am going to ask my sitter that I can get the dependent care benefits for an 800 thru my employer and after it equals what I pay my sitter, I will ask her to submit one receipt to get the lump sum and do this during tax time so it will be an easy exchange.

I wish my sitter could apply for a TIN or EIN so that she wasn't so nervous about her SSN out in the open. I'm still researching this now though. Did you find out any other information?

K.

if she comes to your home you need to pay the taxes on her (matching) and should have been taking out her portion like any employer. if your kids go to her home you should have discussed this before....if she charges you a standard rate then she may claim taxes but if you are getting a deal most likely she isnt. id talk to her before claiming her as youll get her into a load of trouble . remember you dont get back all that $$$ you claim its just added to your deduction which may or may not get used over a standard so it may not be worth losing her over this....

If you are getting reimbursed through Dependent Care FSA, then you and she HAVE to claim it on your taxes.

M.

Tell her you are claiming child care expenses on your taxes. Then ask her to provide her SSN. She really has no valid reason to say no to you since she is getting financial compensation for services rendered -- She is a de facto sole proprietorship. Is she didn't want to share her SSN with her clients, she should have gotten an EIN.

If she WILL NOT give you her SSN, tell her you WILL be listing all her other details (name-address-phone-email) on your tax filing. I am 99% sure the IRS will track her down even w/o you listing her SSN. And then start shopping for another provider.

BTW -- It matters very little whether your provider is licensed or not or reporting her earnings or not. The only citizens exempt from reporting any and all income to the IRS are those that make <$XXXX/year. You are not at fault for reporting your expenses and provider -- She alone bears all the responsibility for reporting her income.

I was a professional nanny for twenty years, and I can tell you that if you pay a certain amount per month to her, you have to take taxes out. I belive it is over $1700 a year you have to taxes out. It is never her responsiblity to do it. Doesn't matter how she views herself, wheter nanny, sitter, day care, if she is in your home you have to pay the taxes. I would not claim it from last year if you paid her more than $1700 a year and start doing it this year so you can, because both of you are going to have to pay fines. This is a great nanny tax company that can help you figure it all out. http://www.4nannytaxes.com/

I doubt she is claiming this income on her tax returns. Did you tell her you wanted to claim this before you hired her? If she never intended on claiming this income and you did, this probably will be a deal breaker for both of you and you may have to part ways. Just be fair with whatever the outcome, in other words if you aren't paying her wages comparable to daycare/nanny wages then don't expect her to claim the income on her tax returns.

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