Another childcare question, I need your opinions

Salsera29 · March 2014

Here is the situation: I got a recommendation from a coworker of mine (who has 2 kids) for a babysitter that she used to use until her kids were in school. She went to school with the babysitter's daughter, so she's known her basically all her life. I also highly trust her opinion. Her sister's kids still go to this babysitter. The other children who go to the same woman are also kids of teachers in my district. She doesn't take more than 4 kids at a time, which is the kind of environment DH and I are looking for, and her prices are very reasonable. She taught preschool for 11 years.

Problem 1: She gets paid under the table, so no tax deduction on childcare.

Problem 2: She isn't a licensed childcare provider.

Having never done this before, I'm not sure how much of an issue these things are. Is the licensing a problem when she comes with so many good references? Would we be idiots to agree to forego the tax deduction? Are these both things we should suck up in favor of the "ideal" environment/person for our kid?

Please help clueless FTM...TIA!

AKB090609 · March 2014

Those would be deal breakers for me. I assume that she is not claiming the income she is earning and I would not want to be involved if/when she gets caught. The other issue I see is that she likely does not carry insurance so if my child gets seriously hurt in her home/care who is going to be held financially responsible?

I used to work for a center and have seen and heard many horror stories about unlicensed care providers, so I may be biased.

TallMomma29 · March 2014

Aside from losing a potential tax credit, I am pretty sure you could face tax penalties if somehow the IRS found out you were paying someone who wasn't paying her own taxes, but I've never looked into it personally so I am not sure. I would definitely research whether you can get in trouble with the IRS! I know you can for sure if you have a nanny in your own home, but I'm not sure if it's the same for child care in someone else's home.

ETA: as for the licensing thing, if someone came with great recommendations from a friend, I don't think I would care! I think of it as kind of the same as if one of my family members or close friends lived nearby and was willing to watch LO during the day, I wouldn't worry about the fact that they didn't have a license

jensavicci · March 2014

I second this. Also, I recommend you request her to have her finger prints done as well as a back ground check. I request it with my children (unless it's family) and anyone who ever cared for children inside of a school/daycare should have already. At least that's how it works here.

ETA: QUOTE FAIL. I quoted the wrong person! I was quoting symphony.

SuperTinkerham · March 2014

Sounds more like a nanny situation than an in-home daycare. So maybe if you look at it from that perspective? That being said - the unlicensed status freaks me the eff out. Not too long ago there was a local tragedy with unlicensed in-home daycare worker left babies unattended to go to WalMart and the worst happened. With that on my brain, I just can't leave SharkBaby in an unlicensed home daycare situation..

January Bride · March 2014

TallMomma29 said:

Aside from losing a potential tax credit, I am pretty sure you could face tax penalties if somehow the IRS found out you were paying someone who wasn't paying her own taxes, but I've never looked into it personally so I am not sure. I would definitely research whether you can get in trouble with the IRS! I know you can for sure if you have a nanny in your own home, but I'm not sure if it's the same for child care in someone else's home.

ETA: as for the licensing thing, if someone came with great recommendations from a friend, I don't think I would care! I think of it as kind of the same as if one of my family members or close friends lived nearby and was willing to watch LO during the day, I wouldn't worry about the fact that they didn't have a license

Yes, you could get in trouble with the IRS for sure. You should be paying employment taxes for her as well (assuming your scenario meets the requirements, but since it's in her own home and she's not a nanny it looks like you're fine there) and it's not just the factor of her paying her own taxes or you getting a credit. No way would I risk this. There may be some repercussions with your own teaching job if they found out you were doing something illegal. Because yes, even though it is really common, it is still illegal, and I wouldn't do it.

Sorry.

Is there really no way that this person won't consider doing things the legit way? Although (and yes, this is really cynical of me), if she won't do something legally when it comes to this, it does make me wonder what other corners she would cut that you may not be aware of.

TallMomma29 · March 2014

symphony4586 said:

Aside from losing a potential tax credit, I am pretty sure you could face tax penalties if somehow the IRS found out you were paying someone who wasn't paying her own taxes, but I've never looked into it personally so I am not sure. I would definitely research whether you can get in trouble with the IRS! I know you can for sure if you have a nanny in your own home, but I'm not sure if it's the same for child care in someone else's home.

ETA: as for the licensing thing, if someone came with great recommendations from a friend, I don't think I would care! I think of it as kind of the same as if one of my family members or close friends lived nearby and was willing to watch LO during the day, I wouldn't worry about the fact that they didn't have a license
If you are paying for a service outside of your home it's the responsibility of the person you are hiring to take care of their own taxes. It's not the customer's responsibility to make sure they follow through.

I would still really look into this, and find definite guidance from the IRS on it, especially since it sounds closer to a nanny situation and it is not a legitimate service/business (since you know she is not reporting her income). While it doesn't seem like it should be our responsibility to make sure someone else pays their own taxes, the IRS generally does not see it that way.

JMSbaby2014 · March 2014

While this is in complete contrast to what everyone else said I would probably be ok with this. Obviously I would want to thoroughly interview her but someone that highly recommended I would probably be ok with it. You would have to ask an accountant how much you'd be sacrificing for a deduction - might be a good deduction for one person and not as good for someone else so it would be a personal question for you.

Ylvelill · March 2014

As far as you being liable for her taxes, I don't think so. You are paying for services, you are not employing her.

I think it all depends on your feelings about her and what she offers. I have friends who went with an option similar to yours and loved it. The woman was awesome.

I would personally go with a center setting since my kids will be 3 at the time I go back to work but I might consider a small home daycare if I had great references and got a good vibe.

January Bride · March 2014

TallMomma29 said:

symphony4586 said:

Aside from losing a potential tax credit, I am pretty sure you could face tax penalties if somehow the IRS found out you were paying someone who wasn't paying her own taxes, but I've never looked into it personally so I am not sure. I would definitely research whether you can get in trouble with the IRS! I know you can for sure if you have a nanny in your own home, but I'm not sure if it's the same for child care in someone else's home.

ETA: as for the licensing thing, if someone came with great recommendations from a friend, I don't think I would care! I think of it as kind of the same as if one of my family members or close friends lived nearby and was willing to watch LO during the day, I wouldn't worry about the fact that they didn't have a license
If you are paying for a service outside of your home it's the responsibility of the person you are hiring to take care of their own taxes. It's not the customer's responsibility to make sure they follow through.

I would still really look into this, and find definite guidance from the IRS on it, especially since it sounds closer to a nanny situation and it is not a legitimate service/business (since you know she is not reporting her income). While it doesn't seem like it should be our responsibility to make sure someone else pays their own taxes, the IRS generally does not see it that way.

Ditto. I am a tax attorney and can tell you for a fact that paying for anything "under the table" can get you in trouble with the IRS, if you are aware that she is doing this. It's one of those things where yes, you probably will never get caught, but I wouldn't want to ever be put in the position to have to explain why I chose to do it.

ETA: I just read my post over and I think it comes off a bit harsh. That's not my intention at all - I think you should do whatever you want, no judgment from me. I was just saying that personally, I wouldn't do it, and was trying to explain why.

acciovino · March 2014

That's an iffy one. I probably wouldn't be OK with her as a daily option, but maybe an as needed basis like a typical babysitter.

Salsera29 · March 2014

Thanks ladies. You basically confirmed what my gut was saying, but I was so happy to have found this option it's hard to let go.

TBH, I hadn't even thought of the illegality of paying under the table. Dumb, I know, but I just hadn't thought about it. If this woman has 4 kids full-time, times $700/month per kid...that's a LOT of unclaimed income.

I have one more recommendation to check out, please cross your fingers this one works out because after that I'm out of referrals!

drunkenhandstand · March 2014

One of the sweetest old ladies watched our DS#1 from 3mo- 2.5yrs. Her and her husband were retired but their social security didn't cut it. And they had to stay under a certain income in order to receive their retirement benefits. We paid her under the table but I trusted her with all my heart. I agree with the other women though. It's risky. But I wouldn't change a thing. She loved on my baby, for two years while I worked, like he was her own. He still talks about "nana" to this day.

cakebatter27 · March 2014

I worked "under the table" as a nanny in someone's home for 2 years. I also am certified, have clearances and fingerprints. I'd be okay hiring someone with these credentials to be in my house...I'm not sure about the leaving my child somewhere though.

Eta: by certified I mean I have a BA in child development and education and I'm certified to teach k-6.

iris427 · March 2014

I think childcare is woefully under-regulated as it is, so I wouldn't go with someone who didn't even have the bare minimum oversight, unless we were talking about a family member or close friend.

Finding safe, good, affordable childcare is a real problem in this country. It sucks.

jnnfrrose6 · March 2014

I'd just like to chime in on the tax deduction side of it for you. There's also an option to set up a dependent care cafeteria type of plan that will take $ from your paycheck before taxes and then "reimburse" you for your dependent care expenses. You'll need a receipt from your child are provider, though, to get the reimbursement so paying under the table would make that challenging too.

clk723 · March 2014

I don't think she would be considered a nanny but you could issue her a 1099 for non employee comp at the end of the year. If you're paying someone over $600 you should be able to issue a 1099, take the deduction, and cover your butt.

Maggiejb2 · March 2014

I'm wondering if some of you are confused about what it means to be licensed or maybe it is just different in my state but you can have a finger print clearance and background check and home inspection and insurance without being listened. I looked into doing in home care myself and could never afford to be lisensed because it was several thousand dollars a year and if you have 4 or less kids it isn't necessary. I think you could consider asking her what kind of insurance/clearance she has before ruling her out for taxes. Just my opinion.

January Bride · March 2014

clk723 said:

I don't think she would be considered a nanny but you could issue her a 1099 for non employee comp at the end of the year. If you're paying someone over $600 you should be able to issue a 1099, take the deduction, and cover your butt.

Based on what Salsa said about the childcare provider, it sounds like unfortunately the provider wouldn't accept this arrangement because then the childcare provider would have to report this 1099 income to the IRS.

bunkgirl · March 2014

jessa8907 said:

Is it always "paying under the table" with unlicensed care providers? Ours will be unlicensed as well but in my state they only require a license if you are providing care for over 4 children who are unrelated to you.

It's only "under the table" if the provider is not claiming the income on his/her taxes. After DS was born we had our next door neighbor (and very close family friend) watch him but she was not licensed, however she did claim the money we paid her as income on her taxes...so it was NOT under the table.

JayBzo · March 2014

Eh TBH I would probably do it. And I would probably issue a 1099 and so be it. If I trusted someone I think that goes a long way, especially because even in a daycare that has all the right "stuff" I still worry about the ratio of kids and if my child is getting enough attention.

We are going a daycare route however, good luck!

jmathi0149 · March 2014

Is she requesting you pay her cash? I used to work for the bank and trust me. The IRS keeps up with your account which is linked to your SS number. If you are depositing $2800 a month every month with no legitimate source of income, it may take some time but eventually the IRS will catch on.

cookieinva · March 2014

@Salsera29‌ I missed when you posted this initially, and I forget where you live (sorry!), but a lot of sates license daycares which provide care for 6 or more so this person wouldn't fall within most licensing programs anyway. Some states provide for a registration type thing, sometimes on a voluntary basis, for these smaller places. I'd look into your state's details on that before ruling out any potential care options based solely on licensing. The taxes may be a whole other issue of course, but since no one seemed to really get into licensing I thought it was worth bringing up.

VTKatie · March 2014

If she was insured, I would do it. For us, finding a loving, trustworthy person far outweighs the money I would save on any kind of tax credit. Also, like @symphony4586 said, if she is working outside your home, her taxes have nothing to do with you. It isn't your responsibility to enforce tax law on people who aren't considered your employees. You can find information about it here....

https://www.irs.gov/publications/p926/ar02.html

Where we live, being licensed is completely different than having insurance, having a background check, etc. I was a nanny during the summers in college and never got licensed. But the families did check my background, driving record, etc.

Gordonnoir · March 2014

I would look at this like anything else you'd want to be done the right way. For example say you had a friend who ran a car issuance company but he wasn't license to really do so and the insurance appeared to be real but really wasn't. You'd be riding around looking around all the time hoping not to get pulled over and if you did you'd be a nervous wreck hoping the cop didn't notice. This is YOUR child. A living human being. DO NOT cut corners with these things because if something serious was to happen you wouldn't forgive yourself. Go to google research the best prices and care that are legitimate and make it happen. Best of luck

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