The information in this article is up to date through tax year 2023 (taxes filed in 2024).
If you provide childcare services, chances are you must report the money you earn to the IRS and pay federal income taxes. This filing requirement applies to home daycare providers, part-time babysitters, and even friends and family who help with childcare needs.
Childcare and elder care provider taxes
If you earn income providing regular child or elder care services (in your home or your client’s home), you will most likely need to pay self-employment tax in addition to your federal (and state) income taxes. The current self-employment tax rate is 15.3% (this includes 12.4% for Social Security + 2.9% for Medicare).
If a daycare facility employed you, you would have taxes withheld from your paychecks all year. But as a self-employed business owner, you must make payments toward your tax bill four times per year. These are called quarterly estimated tax payments. With TaxSlayer, you can calculate how much you’ll need to pay each quarter and prepare to send those payments to the IRS.
Learn more: Estimated Taxes for the Self-Employed
If you provide childcare for friends or relatives
The IRS calls this type of situation “Kith and Kin” care. It can take place in your home or the child’s home. You might even care for your own children while caring for others for extra income. You should report these earnings for tax purposes.
If you are a babysitter
Even though you only watch the children occasionally, your income from babysitting jobs is still taxable. Therefore, you should report it on your income taxes.
Tax deductions for child and elder care providers
To claim a business deduction, the expense must be “ordinary and necessary” for the success of your business. Some important deductions you can consider include the following:
Meals and snacks
You can write off the cost of food and drinks that you give to the kids in your care. Plates, cups, and other serving items can also be deducted. The IRS has a standard rate that family daycare providers can use to calculate the deduction, or you can use the actual cost. The standard rates are listed in IRS Publication 587.
Using the standard rate, you can deduct breakfast, lunch, dinner, and snacks for each person in your care. Just make sure that you keep good records that include each child/person’s name, what meal or snack you served, and the date/time.
You shouldn’t deduct your food and beverage expenses if you get food reimbursements from a meal program or organization. Instead, you should typically report reimbursements as other income.
Toys and supplies
You can deduct the toys and learning materials you use to do your job as a business expense. Don’t forget cleaning supplies, too – those are necessary and ordinary when you care for children.
Business use of your home
When you watch children in your own space, you may be able to deduct a portion of the costs of your home. That includes things like new carpets, furniture, paint, insurance, utilities, and more. However, this deduction requires a little bit of calculation. For example, let’s say you run a daycare out of your basement for eight hours a day, five days a week. But the rest of the time, your basement is used for personal activities like spending time with your family. Since you don’t use the basement exclusively for daycare, you can’t just take a tax deduction for that entire space. Instead, you’ll need to calculate the business use.
The cost of advertising your business is considered ordinary and necessary. So, if you pay for things like website design and subscription fees, print ads, business cards, sponsored ads on social media, etc., you can write those off on your taxes.
Running a daycare generally requires good record-keeping. You probably have quite a lot of office supplies. Items like paper, file folders, envelopes, ledgers, and notebooks can all be deducted from your tax return.
Need help reporting your self-employed income? TaxSlayer Self-Employed is specially tailored to your unique tax situation and includes access to a tax pro with self-employed tax filing expertise.