Family Daycare Provider Taxes

Updated on March 23, 2010
R.P. asks from Plainfield, IL
8 answers


I am really confused about how the taxes are supposed to work for an in-home daycare provider (not the child's home).

Let's say a provider says they are charging 200/wk (800/mo). As the contracting parent- who pays the taxes? If the parent pays the taxes is it withheld from the 200/wk or is it in addition to the 200/wk (does the parent just write a check to the IRS at the end of the year)? I am a little confused as actually has two different documents with the exact same example indicating two different tax payor responsibilities (926 & 523). One states that you ARE considered an employer if you contract out to an offsite in-home daycare. Another says you are NOT an employer if you contract out to an offsite in-home daycare. If the parent pays the taxes, what tax rate is used to calculate what is due? The Nanny Tax & IRS sites are about as helpful as slamming my hand in the door and have left me nothing short of needing to hire 3 government officials to clarify (2 for differing opinions and 1 as a tie breaker). :-)

All of the Nanny Tax sites that I have reviewed indicate that the parent is not the employer and the offsite in-home provider is responsible for their own taxes.

I am just looking for a good provider for our daughter and baby on the way. Can somebody please help clarify?



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answers from Washington DC on

If you hire a nanny to come to your home, you are their employer and therefore are federally required to withhold federal and state taxes from their pay, as well as to contribute to medicare and social security (they pay 50% and you pay 50%).

If your children are going to someone else's house, that person is self-employed. You pay that person your agreed upon rate and it is up to that person to report their income and to pay the taxes on their income. You will need their social security number (or whatever your state uses to identify that business) in order to file childcare expenses on your taxes.

Most likely, if you are using a provider in their home that it not licensed for daycare, they are not reporting their income and paying taxes. If that is the case, you cannot claim childcare expenses on your taxes.

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answers from Austin on

Your provider is supposed to pay their own taxes. At the end of the year, you will need their information and the amount you paid to them over the year to file YOUR taxes and claim the "child care" credit.



answers from Portland on

In home daycare providers do not pay your taxes for you. They pay their own taxes on the income that they earn. You pay your own taxes on the income that you earn and then use to pay the daycare provider. It is always the person who earns income that pays the taxes on the income that they earn.

Employers take out taxes as a convenience for you before paying you. It's called tax withholding. The employer then sends the money to the IRS. When it comes time to file you have already paid taxes and may not have to pay more but if you didn't have enough withheld you have to pay the difference.

So, if you contract out for daycare you pay the daycare provider but you do not withhold taxes for her because you are an individual person. If "you" are a company that contracts out to daycare it may be that the company would withhold taxes.

I think you're trying to put too much thinking into this or I misunderstand your question. Here's my simplified answer. If you, as a parent, hire a day care provider, in home or otherwise, you pay their fee. They pay their own taxes.

If you hire a nanny that comes into your home you may be required to withhold taxes. In that case you would contact the IRS to receive the appropriate forms. I'm not sure if you're required by law to withhold taxes from the wages of domestic workers. I do think it's an option.

Perhaps you're confused about the term in home daycare. This means that the daycare is done in a private home, not the home of the child, as opposed to an institution or business setting. I suspect that the two documents are focused on different situations. Perhaps one is for a nanny situation and one is for an in home, not the child's home, situation. I'd pick one category and not try to compare or figure it out using information on a different category. Perhaps both pamphlets use the term in home. One pamphlet is about in home but not in the child's home and the other pamphlet uses in-home meaning in the child's home.

If you hire a nanny or child care from an organization that places employees, then you may be considered an employer. When an office hires a temp employee they give the agency the money and the agency withholds taxes. It is very confusing.

It sounds like you want to place your child in another person's home for child care. Focus on just that. You are not an employer. You are a client. You do not pay or withhold taxes for the daycare provider. They have several clients and there would be no way that an accurate amount could be withheld.



answers from Kansas City on

we've always let our daycare provider deal with the taxes. I work for a CPA firm (as an assistant, not an accountant) and it seems all of our clients with kids in daycare do the same.


answers from Chicago on

I do not live in the States however in Canada, you claim what you paid in Childcare however, this is where you gain. The daycare provider has to claim this as an income and whether it be private in home care or nursery they have to pay the tax not you. I can't see it being any different in the States. There is no reason why you a working mom already paying taxes would have to pay again for childcare taxes, only if you were taking in childcare. This is where you get your credit back because you have put out so much for daycare. If the U.S. you feel is different just call a tax consultant and they will tell you but I'm 99.9 percent sure that I am right. I used to claim when my children were small, I got a receipt from the childcare provider and claimed what I payed out.
Good luck and take care,


answers from Fresno on

You do not pay any taxes as the parent unless you hire a nanny in your own home (and even then, only if you are her direct employer - if she is hired through a service, then they pay the taxes). Although really, everyone I know just pays the nanny in cash and leaves it to her to declare whatever she wants on her taxes.

At the end of the year, the day care that you take your child to will provide you with a statement showing how much you paid during the year. You will be able to deduct that (to a point) from your taxes.



answers from Chicago on

When I was looking at this myself, I was told that if the person watches only your child, even at their home, you could be held responsible. If the person watches as though a daycare (daycare requires a license if more than 2 or 3 unrelated children or more-cannot remember the number), then that person runs a business and is reponsible for the taxes. One of the people I spoke to--tax accountant-had a sister who had a daughter that went to the babysitter's home. The sitter only watched one other child so did not ahve a license. The accountant's sister was penalized by the IRS for not paying Nanny taxes. Luckily, it only reduced her overall refund, so it was not a huge issue.



answers from Dallas on

Your childcare provider should be responsible for her own taxes, since she should be considered self-employed. I do in-home childcare and I take care of my own taxes. The families that pay me aren't involved in the taxes at all.

Edit** Do keep track of what you pay though, so you can claim it at the end of the year.

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