Taxpayers are commonly mistaken about how much income from one source they have to report, according to the Internal Revenue Service. The misunderstanding is thinking that if it is less than $600 per source, the cutoff for issuing 1099 forms, it doesn't have to be reported. This is wrong. All income from all sources must be reported on the individual taxpayer's federal income tax form. This includes income from home child care.
Minimum Filing Requirements
Whether you run a day-care center from your home and care for multiple children or baby-sit one grandchild for pay, you must report your earnings from child care on your federal income taxes as self-employment income if you meet the minimum filing requirements for your filing status. This means that if you net more than $400 from all sources of self-employment income, you must file taxes. Furthermore, if you must file taxes based on wages from another job, you must report your income from home child care, regardless of the amount or your filing status.
Whether your clients provide you with an annual total of income earned or don't provide it, the IRS expects you to maintain your own records. Figure your income from the previous year to begin. Include income from all sources. For example, suppose you baby-sit one of your grandchildren regularly, and occasionally you also provide child care for a neighbor's child. If you have earnings from both jobs, you will need to combine these amounts to get total income from self-employment. For a day care run from the home, all income from all clients is combined.
Form 1040 and Schedules
To report self-employment income, you will need to file Form 1040, the U.S. Individual Income Tax Return. Along with the return, you will likely need to attach at least two information returns. If you earned more than $400 baby-sitting in the prior tax year, you must report this income on Schedule SE to figure self-employment taxes. If the amount is less than $400, you can simply enter the amount on Line 21 of Form 1040 for "other income." For many taxpayers who must file the Schedule SE to figure Social Security and Medicare taxes, filing Schedule C or C-EZ is also required if you are deducting work-related expenses as a self-employed taxpayer.
When filing income from home child care, consider deducting job-related expenses you incurred. For example, if you provide meals to the children and are not reimbursed for this expense, you can claim these costs as business expenses on Schedule C or C-EZ. Sole proprietors who operate a day-care center from their home likely qualify for several deductions, such as business use of the home, insurance costs for the business and other expenses directly related to the enterprise.
- Internal Revenue Service: Publication 17 -- Your Federal Income Tax
- Internal Revenue Service: Reporting Miscellaneous Income
- Internal Revenue Service: Schedule C-EZ -- Net Profit From Business
- Internal Revenue Service: Schedule SE -- Self-employment Tax
- Internal Revenue Service: Self-employed Individuals Tax Center
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