Tax Prep

It's the childcare deduction and it's been around forever. You can deduct up to a certain amount of your childcare expenses each year, reducing your taxable income. The care provider should provide you with his or her tax ID number for filing purposes. If you use an FSA for this and have only one child, that usually negates the deduction (because you've already used tax-free dollars to pay for childcare via the FSA) but you still need to provide the ID anyway.

The Tax ID for your daycare provider has always been needed. It is used to show that you paid a certain person money. That person is then supposed to claim it on their taxes.

My public daycare provided me with a year-end summary of how much I paid them. The print out had a yearly total and the tax Id. I had to ask for this handout.

My in home daycare that I have been with for 6 years has always provided me with a year end summary and her tax id. This can either be an EIN or the person's Social Security Number.

They will also ask if you paid for any of the daycare with a Flexible Spending Account (pre-tax)

The amount you pay for daycare is then used to determine your Child Credit. I believe it is $3000 a child.

There is an additonal credit you could be eligible for (depending on your income - it gets phased out) on your tax return. You can take a credit and the other party (day care) has to pick up the income. The IRS asks for the Tax ID (or SS# - if its an at-home day care) to match the income with the expenses. You cannot claim it without the Tax ID # though...the program won't calculate it. Good Luck!

The child credit is different than using the money that you paid to sitters in order to reduce your taxable income.

1. CHILD TAX CREDIT: Basically just determines if you get to claim the child as a dependent. Nothing is required except that you meet the eligibility requirements and have the CHILD's SOCIAL SECURITY NUMBER. This has NOTHING to do with babysitter, education or childcare.
http://www.irs.gov/publications/p972/ar02.html#en_US_2012...

2. FSA / DEPENDENT CARE ACCOUNT / CHILDCARE CREDIT
Also - You actually CAN use both the FSA dependent care account and the childcare tax credit as long as you qualify for both.

If you are going to claim money paid to a daycare, school or educational facility, they will have a federal ID. You can claim a certain % of the money you paid toward reducing your taxable income. Typically daycare providers (professional ones.... not babysitters) will provide a *statement* at the end of the year with the total you paid and their taxid #.

3. CLAIMING OTHER CHILD CARE (to reduce taxable income)
Basically, yes if you are planning on claiming to the IRS that you spent that money for childcare / babysitting in order to reduce your taxable income.... then you have to *prove* who you paid it to.
And, keep in mind that your babysitters are going to get whapped with having to PAY taxes on their end.... so make sure that you tell them you are filing what you paid - or they can be in big trouble with the returns are reconciled and you entered that you paid, but your babysitter didn't claim the income. It's fraud.

You can also expect your sitters to ask for a raise.... if this wasn't worked out ahead of time. MOST sitters (not all.... and it's not legal) expect that if they are paid in cash that you are not claiming it.

A good thing to say to babysitters when you make the offer...... "I would ordinarily pay you $9.50, but I'm going to offer you $10 and you will be responsible for paying your own taxes at the end of the year".

Since you aren't WITHHOLDING the money each *paycheck* they will need to file a 1099 and PAY the taxes that weren't withheld. So they will owe money.

These might help:

http://www.irs.gov/Help-&-Resources/Tools-&-FAQs/...

Here are the top FAQs for childcare tax questions.
http://www.irs.gov//Help-&-Resources/Tools-&-FAQs...

This is not a new thing. The maximum you can deduct is 20% of your childcare expenses not exceeding 3000.00.

You have always had to provide a tax ID number to claim child care expenses. Nothing has changed.