If you provide in-home care services for children or elderly people, chances are you must report the money you earn to the IRS and pay in home daycare taxes on your federal tax return. You may be required to pay in home care taxes if you are a home daycare provider, part-time babysitter, and even a friend and family member who helps with childcare or elder care needs. Fortunately, there are tax write-offs for daycare providers available. Here, we’ll cover tax filing requirements as well as tax deductions for daycare and elder care providers.
How childcare and elder care providers are taxed
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.
What if you provide care for friends or relatives?
The IRS calls this type of situation “Kith and Kin” care. Generally, this is the most informal type of child or elder care. It may look like earning extra income by taking care of one or two other children alongside your own. It could also look like getting paid a small fee to help an elderly neighbor with daily tasks. Whether you provide care in your home or the home of the person you care for, you should report these earnings for tax purposes.
Do babysitters have to pay taxes?
Even though you only watch the children occasionally, your income from babysitting jobs may be taxable. For tax filing purposes, the IRS considers you self-employed. Being self-employed means you must report the money you earn while babysitting, and you may be required to pay self-employment tax if your income exceeds a certain threshold.
The advantage of filing as self-employed is that you can deduct expenses related to your babysitting work. These expenses may include transportation costs and supplies like snacks or toys. Keep records and receipts of any money spent, as this will help to lower your taxable income when you file your tax return.
How much care providers pay in taxes
As an in-home daycare provider, you can expect to pay income and self-employment taxes. The amount of tax you pay will vary based on several factors, including your total income and overall expenses. You should anticipate paying at least 15.3% of your net income in self-employment tax. This amount is in addition to your regular income tax requirements.
One effective way to estimate your expected tax liability is using the IRS Tax Withholding Estimator. This tool will help you understand how much tax you may owe at the end of the year and how much you should be paying in estimated taxes throughout the year.
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
Whether you are providing care for children or elderly people, your primary goal is to provide a safe, engaging, and nurturing environment. You can deduct the toys and learning materials, and safety supplies you use to do your job as a business expense.
For children, this may look like art supplies, educational toys, or basic cleaning supplies to maintain a clean and safe area. In terms of elder care, this may look like supplies used to enhance daily activities and promote well-being, such as adaptive utensils for eating, seat cushions, medical aids, puzzles, coloring books, or memory aids.
These items are necessary and ordinary when you care for children or elders
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 using the Home Office Deduction. Eligible costs could include 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.
Marketing expenses
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.
Office supplies
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.
Vehicle expenses
As an in-home daycare or elder care provider, there may be times when you are required to use your vehicle to work. Although you cannot claim your commute, you can claim vehicle-related expenses for transporting children to and from school, elderly clients to doctor appointments, or community events. You can claim these expenses by calculating your mileage as a business deduction
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.
