Daycare Tax Tips


Think it won't matter that much if you treat your worker as an independent contractor instead of an employee?

Learn from this child care provider's bitter experience

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A family child care provider writes:

>Help! I'm a licensed daycare provider in New York state. I have been running my business for 4 1/2 years. In 2009 I had a sub who was working for me and she was collecting unemployment from a prior job. She left to work for another daycare provider full time. Long story short, the state says I was an employer. Now I have unemployment, workmans' comp and disability coming after me. If I knew that I HAD TO run my business differently I would have. I'm VERY frustrated and I have a hearing coming up. I have been researching anything and everything that would help me. I found your site. I know at least 20 or so daycare providers that run their business this way (using Form 1099-MISC at the end of the year). I am writing for help or advice.

I am so sorry to hear what you are going through. This is the kind of worst case scenario that I envision when daycare workers are treated as independent contractors. Just like you, many daycare providers don't even know that it's necessary to treat assistants as bona fide employees. I constantly work on getting this message out. Proper employee paperwork is required when hiring child care helpers.

It is easy to be led astray by the 1099 crowd, but it's like our mothers always said:

Just because everyone is doing it, doesn't make it right.

What I find really discouraging is that many tax professionals seem to encourage the filing of Form 1099-MISC, rather than giving employees a Form W-2. Don't follow this advice, unless you have a valid 1099 situation, which is relatively rare.

According to the Internal Revenue Service, the general rule is that an individual is an independent contractor if you have the right to control or direct only the result of the work and not what will be done and how it will be done. Would you hire someone to work in your home child care and NOT maintain control over the worker's actions and how the work is carried out?

I really can't offer any advice or assistance, I'm afraid. It sounds like New York State is pretty aggressive in cases like this. California is, too. The states often get involved when a worker leaves and tries to collect unemployment benefits. I'm not sure fighting the situation will get you anywhere, but do point out to the NY authorities that this is a common industry-wide practice. Let them know you would've done differently if you had known better and ask (at least) to have your penalties abated (reduced or eliminated).


Last updated 16 June 2012

Posted on 2011-02-01 06:10:49

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