Daycare Tax Tips


1099 Child Care Helpers Are Rare

But you may have other 1099 contract workers

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Persons you pay to come into your home and work in your family child care business are almost always your employees. It doesn't matter how few hours they work. They are employees whether you hire them for one day, one week or an entire year. Full time, part time, it doesn't matter.

The only circumstance where a person helping you care for children is not your employee is if this person is in the business of providing substitute care. Such a person should be advertising to the public, give you a tax id number, provide services to multiple child care providers, and have a business contract for you to sign. You should also receive an invoice or bill.

You might also have an independent contractor if you ever engage the services of a storyteller, tutor, puppeteer, or other specialized businessperson. Maybe you had a carpenter build your cubbies or play structures?

Household help (as opposed to childcare help) should qualify for independent contractor treatment, if they carry out their duties with very little direction from you. Home service providers are much more common than direct business service providers and can include cleaning services, yard services, painters, window washers, handymen, etc.

If you engage the services of an independent contractor, ask them for their federal tax id number by giving the person a Form W-9 to fill out. That way you'll have the information needed to prepare a Form 1099-MISC at the end of the year, if necessary. Later the contractor may not be reachable, or they may not want to give you this information.

You must prepare a Form 1099-MISC by January 31 for any independent contractors you paid $600 or more during the prior year for services to your child care business. You should also prepare 1099s for any home service providers. There are some exceptions, however.

If the contractor indicates on their W-9 that their business is incorporated, no 1099 is required. In addition, if the contractor pays you by credit card or through PayPal or some other third-party payer, again, no 1099 is required.

Failing to prepare and file a 1099 when required will generally result in a penalty if your tax return is audited. California residents could lose the business deduction on their state income tax return. You can easily prepare a Form 1099-MISC yourself. Don't despair if you can't meet the January 31 deadline. Follow these February instructions.

Keep in mind that there are some serious risks associated with treating a general childcare worker as an independent contractor and going down that road can come back to bite you.  Visit the IRS website for more information on how to distinguish between an employee and an independent contractor.


Last updated 4 February 2012

Posted on 2009-11-17 03:10:36

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