Working Moms

Un-Licensed Daycare - Taxes

So through the grapevine I have been given the name of a local daycare provider who comes highly recommended.  ("she potty trains!  she's the best! my kids love her").  Searching on my state's website, it appears she is not actually a licensed daycare provider.  I know there are questions I need to answer for myself as to how I feel about this, but what does it mean from a tax stand-point?  My husband is all about pre-tax this and tax breaks that, and I'm guessing if she's doing it "under the table" he wouldn't be able to file for these types of things.  Correct?
the usual mischief


Re: Un-Licensed Daycare - Taxes

  • She would need to provide you with a Tax ID number that you'd have to put on your taxes in order to get the tax breaks. If she's completely under the table, she probably doesn't have one. I don't know Texas laws and whether or not you can be both unlicensed but still have a tax ID as a daycare.
  • Yep - if she's not paying taxes on her daycare income, you can't use your pre-tax dollars for it. 

     If you're comfortable with using an unlicensed daycare, the trade of is usually that the savings are way better than you'd get using pretaxed dollars. 

    Lilypie First Birthday tickers
  • Waa told by a coworker, that in her analysis (and this is based on where we are) the flexible spending account tto pay for daycare pretax is only worth it if you have more than one child in day care.
    Lilypie - Personal pictureLilypie Second Birthday tickers
  • There's a difference between unlicensed and "under the table."  We'll be using an unlicensed daycare in the fall, but we asked and she pays her taxes and is willing to sign the pretax forms.  I would ask if she's willing to sign them.  Pretax versus childcare tax credit depends on your income and how many children you have in daycare.  Just think, if you were paying a relative, they wouldn't be licensed, but you could still do the pretax benefits. 

    image                              image                                  

     

    September PAL Siggy Challenge;

    Favorite funny men 

            image

     

  • Like someone else said, being unlicensed isn't the same as under the table - they're separate.  She's operating more as a babysitter and a babysitter can (and should) claim the income they make from jobs.  You would more than likely be using her personal social security number vs a tax ID number for a daycare.  One thing to be careful of is to know if unlicensed care is even legal in your state.  It's illegal here in Massachusetts once you hit certain criteria (i.e. a certain number of non family children in your care).
    Formerly known as elmoali :)

    image
  • You can use a social on the tax forms. It doesn't have to be a business tax id. Also, many small businesses use their social and file as a sole proprietor which she probably does so there is no business name/TIN to attach to it but it's perfectly fine for taxes. I would double check with whoever will do your taxes so you're not relying on my random internet advice, ha ha, but I did taxes for a few years as a volunteer for a low income tax returns service the state provides and remember using SSN is perfectly permissible. Get receipts.

  • image LittleFish1:
    Waa told by a coworker, that in her analysis (and this is based on where we are) the flexible spending account tto pay for daycare pretax is only worth it if you have more than one child in day care.

    you can contribute up to $5k in the daycare HSA, so if daycare expenses are at least 5k it's pretty much worth it since not being taxed in the first place is almost always better than the deduction you would get. We only have one child but it's about 11k a year so it's definitely worth it.


  • c
    image Dgardner203:

    I was actually planning to write in on the same topic today! Thank you for posting!

    I might not be educated enough but I still don't understand a lot of the replies. Maybe because we don't do our own taxes.  We are planning to hire a baby sitter when little one comes.  This woman we were referred to that our friend uses watches 4 children and specifically stated she is "under the table" and by referral only. She is less expensive than all the day care centers in the area by far, and I feel comfortable with her. Am I able to claim these expenses on my taxes?

    In your case, no. If she specifically said she's expecting to be paid under the table then she is not claiming it on her taxes. 

    When you have claim child care payments as a credit on your taxes, they will ask for the provider's name, SSN/TID, and address in addition to amount paid. The IRS will then be looking for that person to report income in that same amount. If she doesn't report that income, the IRS will be asking both of you why there's a discrepancy.

    OP - PPs are correct that being unlicensed =/= under the table. Both of those are things you'll want to talk with her about specifically. So long as she reports the money as income, you should be able to use payments towards an FSA or as a credit on your taxes. I'm not aware of the IRS having rules about unlicensed care facilities but you may want to check just to be sure.

    ETA - most states have rules about when a person needs to be licensed vs. just being a babysitter. It's usually a set number of kids in her care so if she's under that number, she may be doing absolutely nothing wrong by not being licensed.  



    imageimage
  • A few thoughts:

    1) Depending on how many children she's watching, she may actually be legally operating this in home daycare. In Virginia, which has some of the most lax regs on this, you can watch up to 6 non-relative children before you must get a license. I still probably wouldn't use an unlicensed provider, but in some parts of the state, it's the only option. 

    2) Are there other licensing authorities she may be listed with? In VA, some counties offer their own license which stricter requirements than the state; those licensed by the county are not listed on the state's website. 

    3) To your actual question - my childcare FSA does not require a license ID number to reimburse - the lady's SSN can substitute. So if she's legally in the country and being honest on her tax records, it shouldn't be a problem. I can even get reimbursed for random one-off babysitters - they just need to sign a form. 

     

    Baby Birthday Ticker Ticker

    BabyFruit Ticker
  • Thanks for all these replies!  Very helpful!  I will definitely bring this up when I go to visit next week!
    the usual mischief


  • image milkergirl1:
    There's a difference between unlicensed and "under the table."  We'll be using an unlicensed daycare in the fall, but we asked and she pays her taxes and is willing to sign the pretax forms.  I would ask if she's willing to sign them.  Pretax versus childcare tax credit depends on your income and how many children you have in daycare.  Just think, if you were paying a relative, they wouldn't be licensed, but you could still do the pretax benefits. 

     

    This.  I have my DS in an unlicensed in-home daycare, but she has provided me with her Tax ID.  She reports all of the income she makes to the IRS and pays taxes on it.  Just discuss this aspect of the child care when you interview the provider.

    Lilypie First Birthday tickers
    Image and video hosting by TinyPic
  • mb314mb314
    250 Answers 1000 Comments 500 Love Its Second Anniversary
    member

    We are in an unlicensed daycare, and I love our daycare.  Go with your gut on it.  We were in a licensed facility, and I hated it.  It was cold.  By contrast our in-home, unlicensed daycare is warm and loving and I trust them.  Obviously there are good and bad licensed and unlicensed places, but if you've done your research, gotten references, and like the feel of the place, go for it.

    My daycare lady reports her income, so I've been able to use my flexible spending account money on the daycare.  I do find it's worth it for tax purposes, even with just one kid.  

    Baby Birthday Ticker Ticker
       
    Baby Birthday Ticker Ticker

     

  • ss+elss+el
    Ninth Anniversary 1000 Comments 25 Love Its Combo Breaker
    member

    Ditto - unlicensed does not necessarily mean untaxed.

    DS goes to an unlicensed inhome and she provides tax documents at the end of the year. In fact, she's better about getting them to people than the center we were using before.

This discussion has been closed.
Choose Another Board
Search Boards