If your provider is evading taxes...

[staceychev]

The Childcare FSA thread made me think of this, and I'm wondering if anyone has been in a similar situation.

My DD1 has always been in a daycare center, i.e. a formalized business that pays employees wages and gives me a tax ID number to put on my taxes at the end of the year to get the childcare deduction. Because DD2 is younger than DD1 was when I put her in care, I'm looking for a home provider. One of the women I interviewed mentioned up front that I can't claim the deduction on my taxes.

So, I talked to my accountant, and the deduction isn't going to make a huge difference for us financially, because the woman is charging less than we paid for DD1 last school year (she's moving into public kindy now), and the savings is more than the deduction would be. The question I have, though, is if I'm going to get in trouble for this. I mean, if she's not paying taxes, that's her problem, right? It's not like she's a nanny and she's an employee and I need to be taking taxes out of her pay, right? She takes in multiple kids and this is what she (and assumedly her husband) have chosen to do.

Thoughts?

[One_Girl]

Is she licensed? If she isn't paying taxes I would want to know if she is also breaking other laws such as licensing laws. I wouldn't put my child in a place that isn't licensed because it is really easy around here to be licensed. They require a health and safety check, a small fee for the license, and a fire department inspection and that is it. I think you should talk to your accountant to find out if this is considered a nanny share or home daycare if she isn't licensed.

[nextcommercial]

I don't think that's legal no matter what. I've been doing daycare for 25 years, and wouldn't even dream of not paying taxes.

And, quite honestly, i'm tired of paying other people's taxes for them. It's not like nobody has to pay them.

Feel free to tell her I said that too.

[happysmileylady]

No, you won't get in trouble if you use her anyway. It's her job to claim her income on her taxes, not your job to ensure that her taxes get paid.

Ultimately, if she's as inexpensive as you say, then I am guessing that it's not about paying taxes, but about the mess of having to deal with the way the income is claimed as self employed. When I do our taxes with me WOH, it's pretty straightforward, income on the W2, add it up, add up the taxes taken out, subtract the taxes we owe, done. When I do our taxes with me self employed, it's a GIANT PIA for me. Last year I was self employed for the entire year. I did do some daycare and also photography work, so two self employed gigs is more of a pain than one, but first, there's making sure to keep track of every single dollar going in and going out specifically for the business, seperate from the regular household budget. Then there's figuring out the deductions, which are also seperate from your regular deductions like mortgage and such. And all sorts of other details and forms to mess with. And after all of that, it only made a difference of $100 in the refund we got (meaning that we would have gotten $100 more had not claimed any self employed income.) I did it, but I totally understand not wanting to mess with any of that if it's not going to be worth it like that.

[JessieBird]

I doubt that you would get in trouble. I suppose the fact that you choose not to make the deduction would signal to auditors that you knew she was not paying her taxes but that's a strech and still unlikely to make you guilty of anything. Your accountant could advise on that. However, I agree with pp who suggested that you make sure she is following all other rules. She would not get shut down for evading taxes (at least not suddenly, they want her to keep making money to pay back the taxes after all) however she could be shut down for failing to have a license or meet other regulations in your area. Even if you don't care about her evading taxes, it would be a huge PIA and emotionally difficult for your DC if she were suddenly shut down for any reason.

[Ellien C]

I would want to know what kind of line of work you and your partner (if you have one) were in. There have been a LOT of politicians who've been in trouble for off-books "domestics." Not that you necessarily want to go into politics but it is the sort of thing that can look very bad if it got out and got around - depending on your career - even something school principle, or law enforcement etc.

[CarrieMF]

There have been a LOT of politicians who've been in trouble for off-books "domestics."

Their childcare provider is not a domestic though. A domestic is an employee, someone who'd be living in their house or working strictly for them at their house.

I did childcare out of my home for a number of years. I never reported the income. I did not make enough that they would take taxes out or would effect our household's total income.

Childcare, farming & waitressing are 3 of the more common lines of work where there is alot of under the table wages not reported.

[kijip]

If someone is not paying taxes I bet they are not licensed and not in full compliance with all state laws.

I also worry that it is more likely they:

-They are uninsured.
-don't do full background checks on helpers.
-Dodging taxes and legal registration requirements for a reason.
-Pay helpers under the table, depriving them of SS credits and things like UI eligibility.

I would never use a care provider that did not run a fully legal, fully registered business. A casual babysitter? Different story. But if they are a ft daycare provider, I would not be down with not claiming my tax credit or with helping someone avoid paying their fair share of taxes.

[kcparker]

I looked into this - if it's at her house, she is supposed to be doing all the tax stuff herself, and you should be able to claim dependent care spending credits, but she has to have a tax ID number for you to do this and be operating above board (or you have to do due diligence to try to get this info.). If she's at your house, you are supposed to kick in taxes for her (7.65% of her wages, I believe), and she kicks in an equal amount. YOU won't get in trouble if the care is not at your house. You can look at this IRS page for more info. and links to publications.

[jeteaa]

i have done home daycare..... I have worked in others home day cares..... this is how I would sum it all up. If you want your child treated as a business cost/profit then by all means, only search out the fully licensed childcare businesses. But if you want your child in a loving home environment with a MOM caring for your child and hers as a MOM and not a business woman then look for a MOM child care provider living in a safe home.... and DON't worry about the license/taxes. I know many moms who would be fantastic child care providers but they DO NOT want the state government in their homes. Telling them they can't let their own children into the bedrooms during business hrs because they are on the 2nd floor etc.

[rivkah]

She is asking you to make an unethical deal--to agree not to claim a tax deduction so that she doesn't have to pay income taxes. Though it is not your responsibility to ensure she pays her income taxes, she is asking you to collude in tax evasion.

[menow]

Although it is true you are not personally responsible for the daycare provider filing correct tax returns, like a PP stated, you are colluding in tax evasion which in legal terms is "aiding and abetting". It's a crime and federally prosecuted with years of jail time. I would stay far far away from this daycare provider if she is, in fact, evading her income taxes since you would knowingly be assisting her in the crime. Tax evasion is a crime and not just a slap on the hand or a fine that auditor's assess. The IRS has criminal investigators who deal with this stuff on a daily basis. No amount of daycare cost savings would be worth jail time IMPO. Of course this is the worst case scenario but I just wouldn't want the risk. Good luck. It sounds like you have other options so at least that's hopeful.

[poppan]

Realistically, no I don't think you would get in trouble with the IRS. You are buying a service, you are not responsible for whether the service is fulfilling their tax obligations. That's between them and the IRS. Besides that, the IRS has much bigger fish to fry than whether patrons of a business knew whether that business was paying taxes or not. Let's be realistic--it would just never stick to you.

If I liked a daycare and the provider and the cost worked out well for me despite not being able to use my FSA -- I'd go for it. But I understand that others may feel it's unethical and that they would make a different choice.

[Sierra]

Being self-employed is hugely expensive. When my dw and I were self-employed, about 25% of our income went to taxes. If someone is trying to provide affordable childcare, they often find themselves wedged between a rock and a hard place. If they run everything legit, often the expenses of keeping things legit exceed what is affordable for them. So they can either up the cost for parents and get legit, or they can make agreements with parents that it is in everybody's best interests to exchange money under the table. It's up to you to decide how strongly you feel about supporting childcare providers in going the legal way (it does surprise me a bit when folks actually run childcare centers in their homes, with multiple children, and yet don't go the legit route), but I think it is unfair of folks to insinuate that the tax issue indicates that the childcare provider is likely to break other rules/laws, or is a fully unethical individual, etc.

[Tigerchild]

Originally Posted by Sierra

It's up to you to decide how strongly you feel about supporting childcare providers in going the legal way (it does surprise me a bit when folks actually run childcare centers in their homes, with multiple children, and yet don't go the legit route), but I think it is unfair of folks to insinuate that the tax issue indicates that the childcare provider is likely to break other rules/laws, or is a fully unethical individual, etc.

Just pointing out that if you are evading taxes in a home daycare that involves children from more than one family--you are automatically probably breaking other rules/laws--like being licensed. If you are licensed and evading taxes, that's pretty risky because you are notifying the state (as is your legal obligations) that you have a home daycare, thus you run a higher risk of being audited because you are on the books.

And perhaps they may not be a bad person or an evil person, but...evading taxes is, IMO, unethical...no matter how much you hate your state government. So yeah, poor ethics (which doesn't have much to do with "morality"--I could see in certain circles people morally celebrating people who don't "support the government") IS involved. Whether that makes someone untrustworthy with children, depends. I know that if I did not know the person otherwise--someone who was trying to hide their business from the authorities, both financially and probably with licensing, does not meet my risk aversion.

[Sierra]

Originally Posted by Tigerchild

I know that if I did not know the person otherwise--someone who was trying to hide their business from the authorities, both financially and probably with licensing, does not meet my risk aversion.

I hear you (though I think the ethical questions will feel differently to different people), and that would probably be the rub for me too...whether or not it was someone I otherwise knew. I would be far less likely to put my child in their care if I did not have an established relationship with them.