Childcare Tax Deduction

Updated on April 16, 2009
P.N. asks from Littleton, CO
8 answers

I'm a stay-at-home Mom who occasionally does contract work for my old employer. I have a wonderful neighbor two houses away who watches my 20-month old when I have work to do. She is extremely flexible and is available pretty much whenever I need her at $10/hour. My little girl loves her and her family (husband, two boys and two cats) and always has a wonderful time when she visits.

My question is about asking her to claim the income she receives from us, so that we can deduct the expense on our taxes. When we had our taxes prepared for 2008, our CPA told us how much difference claiming the deduction on our taxes would make and it was significant. However, when I talked to her about it she seemed pretty hesitant and I can tell that she would rather keep the money "under the table."

I realize that there would be no question of the tax deduction for a licensed day care or child care facility, but wonder what other families do in this situation. Do you ask casual or "drop-in" type babysitters for a social security number and claim the child care expense on your taxes?

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So What Happened?

I really appreciate all the responses and the different perspectives(keep them coming). Our CPA told us that we would be able to deduct 30% of the childcare expenses, that it is one of the "biggest tax deductions you can have." I guess we take this to mean that for every $10 we spend, we'll pay $3 less in taxes. However, when I look at Publication 503 as suggested, it appears that it would really be only a percentage of that.

Our wonderful neighbor didn't watch our daughter all that much during 2008 and we decided to not take the tax credit since it was not something we had discussed going into this. I am planning on working more hours starting in the summer so 2009 expenses will be higher. My neighbor and I are trying to figure out how to handle this in the best interest of both families and I told her that I was going to send out this request and see what others are doing.

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answers from Denver on

I haven't ever claimed child care expenses on my taxes due to my paying a person and not a center. I know the deduction could make a difference. The only thing I could think of is to claim it as another work/business expense.


Have a GREAT day!


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answers from Colorado Springs on

Considering she does not do it on a daily basis, you should not claim it no matter how much you pay. I have my daughter with a caregiver and we pay such a great rate, that we do not claim it and neither does she. If you want to claim it, then take her to a lisensed daycare where you can do drop in or have a mutual understanding with her for the next year. Hope I helped but I have been there too. We considered it on our end but we pay so little compared to a daycare center, we consider it "perks" for her. Just my opinion! Have a great day!



answers from Provo on

A lot of women who do it at home do not claim the income on their taxes. I would just make sure before I start taking my child there that they do. The last woman that I had watching my son took it off her taxes and when I asked her about it she just gladly gave me all the info. I just take my son to a pre-school now and it's great for me. I would definately say for $10 an hour she would need to take it off her taxes.



answers from Denver on

the child tax credit is calculated on form 2441 and filed with your tax return, the percentage is based on your income... the more money you make, the smaller the percentage gets. the nice thing is that it is a tax credit... not a deduction. so for every dollar of the credit, that is a dollar less in tax you pay. granted it is not dollar for dollar with what you spend, but it is a pretty nice benefit.

you DO need the providers name, address AND social security number... this is provided on form W-10 as someone else has posted and despite what others have said, if you do not include this information you may receive a tax notice for an incomplete form and the credit can be disallowed... also, you can't claim child care as an other business expense... it would not qualify for someone who is self-employed nor as as other itemized deduction. get your facts from your cpa!

also, if you had a nanny who came to your home and provided childcare that is when you run in to the possibility of being subject to paying payroll taxes... typically it is when you pay someone more than $1000 in any calendar quarter... which exempts most "casual" babysitters.

someone outside your home that provides childcare independently is responsible for properly reporting their income earned from such activities... yes, a lot of people work under the table... but it is still illegal to do so... I realize it doesn't pay that well, but it is still tax evasion.

however, you have to communicate the expectations of reporting or not reporting income up front.. and you may lose convenience and friendship if you decide to push the issue of claiming the deduction. also, this could cause problems for her as the irs can match up your information and hers... and she may be found out that she is working under the table.

anyway, it can be a sticky mess... personally, I have to pay taxes on what I earn... and it kind of gripes me that other people feel like they don't have to... though by the same token, I can understand why people are tempted to keep things off the radar.

good luck!



answers from Denver on

Being a daycare person myself and self employed this should have been discussed before you started paying her. If you didn't have an agreement that makes it tough. Sounds like she does great work for you and if she isn't making much doing it, I seriously have a hard time seeing it would make a difference on your tax return. One woman I work for pays me $360 a month and it barely made any difference to her to claim the entire year!

You do not have to fill out a W10 or any other form for her personally, however you have to have a trackable record, checks and documentation to prove your claim of the exact amount you pay her. You DO NOT need her SSN either. You need her name and address. I do not provide my SSN to anyone I work for however they do deduct me and I claim the income.

If you pay her significant income like over $800 a month the that is one thing then of course you should be able to deduct it. If is like $100 a month I don't see it making a difference realy. Teenagers don't report income from casual babysitting nor do you deduct that, right? So I think it depends on how often you use her.

Talk to her about it, tell her the difference means a lot to your family financially. If her husband is in a high income bracket she could be forced to owe taxes on what you have paid her, however like with my business I deduct food, my home and utilities like any home business so I don't owe much or at all after those deductions. She has to do Schedule C for her taxes as I do though.

I personally if it was very casual, very minimal drop in daycare not ask her and let it be. If she is a neighbor and a friend then why cause upset in that relationship? Then if you continue using her do another plan for next year where she knows your expectations.



answers from Denver on

1. You are absolutely entitled to take the deduction. Have her fill out the W-10 form if this is the route you are going.

2. Check out IRS publication 503 for information on the Child Care credit, how to claim it, and how the "employer tax" is figured.

3. Consult with your accountant to ensure you fill out the forms correctly, verify what, if any, threshold there is to claim the wages you paid.

4. Find a new care provider; asking her to pay taxes on the occasional $10/hr so that you can claim a credit is, although per IRS regs OK, self serving. Its just not worth her time and effort to track and pay for occasional work.

I watched a child for a few months for some people a few years ago. It was their daughter and my daughter in my home. They paid $35/day. And then they wanted me to pay taxes. I did not watch their child anymore and asked them to find a licensed facility with state mandated ratios and classrooms full of kids. GL.



answers from Salt Lake City on

If you're going to make her claim her "income" you're going to have to pay payroll-type taxes on the same amount. If you want it on the books and not "under the table" you just need to make sure you're covering all your bases. If she has to claim it, so do you. It may not benefit you as much as you think. Also, if in total it's not more than a certain amount (I don't know the exact number) she technically doesn't have to claim it. It's like hiring a 15 year old babysitter. It's not an official "job" with tax ramifications. Anyway... just keep that in mind. Also, she may be hesitant to do it because she has no idea how, rather than just wanting to keep it under the table. Maybe in exchange, you could have your CPA do her taxes. You're asking her for a favor, after all. And no, I never ask casual "drop-in" babysitters for a SSN, nor do I claim the expenses. But then again, I don't use them probably as often as you. Hope you can find a good solution. Good luck.



answers from Billings on

I am on the other side of your dilemma: I am the babysitter. I claimed my wages for years, and even after all the things I could write off, I still barely came out even most years, and some years, I didn't even turn a profit. I now try to work under the table if I can, because otherwise, I am basically working for free. Your babysitter is probably in the same boat.

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