Tax Tips and Deductions for Childcare and Elder Care Providers

An in-home childcare provider cares for a child

If you are paid to provide childcare services, chances are you will need to report what you earn to the IRS and pay federal income taxes. This 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 you were employed by a daycare facility, you would have taxes withheld from your paychecks all year long. 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: How and When to Make Quarterly Estimated Payments  

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 taking care of 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’ll be able to 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, your reimbursements should typically be reported as other income.   

Toys and supplies   

Any of the toys and learning materials you use to do your job can be deducted 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. Here’s why:   

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. If this applies to you, read our article on the business use of your home for daycare providers.   

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. Your paper, file folders, envelopes, ledgers, notebooks, etc., can be deducted from your tax return. 

This article was last updated on 11/30/2022.   

Disclaimer:
This article is intended to provide general information to the public and does not provide personalized tax, investment, legal, or business advice. You should seek the assistance of a professional for advice on taxes, investments, and any other financial, legal, or business matter pertinent to your individual situation.