Beginning in January, or possibly before, there will be families requesting information from you for their taxes to claim the dependent care tax credit. They will need your EIN (or SSN, or ITIN if you do not have one) and signature. If you do not yet have an EIN, you can file for one for free Apply for an Employer Identification Number (EIN) online | Internal Revenue Service (irs.gov). This is one way to safeguard your personal information and protect yourself from identity theft.
Form W-10 (Rev. October 2020) (irs.gov) is linked here. This is likely what a family will bring you with their request. Note the language on the form: “A care provider who does not give you his or her correct TIN is subject to a penalty of $50 for each failure unless the failure is due to reasonable cause and not willful neglect.”
While a family may provide you with a W10, some providers choose to also provide them with a year-end receipt to ensure that the income the provider is claiming matches the expenditures the family is claiming. While a year-end statement is not required, it can decrease the stress of a potential audit if a family tries to claim a different amount of payment than their provider.
Best practices for year-end receipts:
- Include your name (or business name), street address, taxpayer number, the full name(s) of the person who paid for care, the full names of all children in your care, and the date you created the receipt.
- Double check yourself! Calculate the rate the family should have paid based on dates enrolled and your rate for the time period. Then review your prior payment records and bank statements to ensure accuracy.
- Make two copies: one for your records and one for each family. Sign both and have families sign both as well. Know that if two parents file taxes separately, only the parent claiming the child as a dependent on their taxes can claim child care expenses. Keep this signed record with the rest of your tax documents.
- Itemize! If a family has multiple children in care, be sure to total up each individual child’s fees separately and clearly label them.
It is tax season and this webinar presented by the Internal Revenue Service provides helpful information for child care providers about tax related issues including:
- Income items
- Recordkeeping tips
- Business use of the home calculation
- Expense Issues
- Depreciation rules and reporting
- Food Program Reimbursements (CACFP)
This webinar can be viewed using Flash Player or Windows Media and there is also a PDF of the powerpoint presentation available. For more information from the IRS for Family Child Care Providers see the Child Care Tax Center page on the IRS website.
Click here for the webinar.
