Tom Copeland's Taking Care of Business

Managing Your Money to Meet Short-Term Goals Webinar - May 21st

True or False?

"Setting financial goals for your family is only important if you have already saved a lot of money."

"A good way to show your love to the children in your care is to buy them something each week."

"If you are saving money that you will need in the next 1-5 years, you should look for an investment that will give you the highest rate of return."

These questions and more will be answered by me during my webinar "Managing Your Money to Meet Short Term Goals" that will be broadcast May 21st at 8:30pm Eastern Time. It is sponsored by the National Association for Family Child Care and will last for 90 minutes.

Register now.

I'll be discussing how you can make better financial decisions before you retire. The webinar will focus on how to reduce your spending and increase your savings. I'll discuss the differences between acceptable and unacceptable debt. I will also talk about how you can set and reach your financial goals and where to put your money that you may need in the next five years.

These monthly webinars are an opportunity to watch a power point presentation on your home computer and listen to me cover these important issues. You'll have the opportunity to ask me questions live and you will receive a copy of the power point, plus handouts.

Don't miss this fun opportunity!

The cost is $25 (100% tax deductible!) for NAFCC members and $60 for nonmembers. To register, or contact Mandi Hardy at businesstraining@nafcc.org.

If you are not a current member and would like to take advantage of the many wonderful benefits that NAFCC has to offer, please visit the website http://www.nafcc.org and click on the membership tab.

To see my entire 2013 webinar schedule.

Photo credit: www.sheknows.com

For more information about how to save money, see my book Family Child Care Money Management and Retirement Guide.

The Basics of a Parent-Provider Contract

As a family child care provider you are generally free to put whatever you want in your parent contract. There are two exceptions:

Some state child care licensing rules define what should be in your contract, so check with your local child care licensor before finalizing your agreement.

Federal anti-discrimination laws make it illegal for you to discriminate in your contract based on race, color, gender, religion, age, disability or national origin. Your state or local government may add additional categories such as sexual orientation.

Other than these limitations, you can establish whatever rules you want in your contract. All contracts, however, should contain the following four clauses:

1) The names of the parties to the contract (the parent and the parent), as well as the name(s) of the children. Also include contact information for each parent (home and work number, email, etc.).

2) The terms of the contract: the days and hours your program is open and the fees you charge (weekly/monthly rate, holidays, vacations, late fees, holding fees, registration fees, etc.). These are the only rules that can be legally enforced by a court of law. In other words, if you refuse to provide care on a particular day that is covered by your contract, the parent is not legally required to pay for that day.

If the parent refuses to pay for care that is covered by the contract, the provider can go to court to enforce this rule. All your other rules are not legally enforceable. These are defined as policies: illness and emergency policies, activities, meals, naps, toilet learning, discipline, etc. If you or the parent are unhappy because the other person is not abiding by these policies, the solution is to end your agreement, not to take the person to court.

3) The method to terminate the contract. Usually providers require parents to give them at least a two-week written notice before the agreement can be terminated. I recommend that providers should include the language "Provider may terminate the contract at will" in their contract. This allows you to immediately end your agreement if a parent becomes disruptive or the child becomes unmanageable.

4) The signatures of the parent and provider. When both parents are caring for their child, you should get both parents to sign your contract so that it can be enforced against either parent.

Make sure at least these four points are covered in your contract. You can always modify it later. Put your policies in a separate document from the contract.

Image credit: www.nononsenselaw.com/contracts2.html

For examples of contracts and policies, see my book Family Child Care Contracts & Policies.

Retirement Quiz

Most family child care providers, like most taxpayers, are not saving enough for their retirement.

Many do not have a good understanding of how to plan for their retirement.

Test your retirement knowledge by taking this short quiz.

1) Social Security payments will replace approximately what percentage of the current earnings of the average taxpayer?

a. 20%  b. 40%  c. 60%  d. 70%

2) If a provider's only work was doing child care for fifteen years and she had a profit over $400 for nine of those fifteen years, would she qualify to receive Social Security benefits?

a. Yes  b. No

3) You can start receiving Social Security retirement benefits at age 62. If you do so you will receive lower benefits than if you waited until your full retirement age of 65, 66, or 67 depending on when you were born. Under what circumstances might you take benefits starting at age 62?

a. Current bad health  b. Immediate financial stress  c. History of early death in your family  d. All of the above

4) If you aren't saving enough now to be able to retire at age 66/67 what can you do?

a. Work beyond age 66/67  b. Save more now  c. Live on less in retirement  d. All of the above

5) If you save $35 a week and earn 8% a year in a tax deferred IRA, how much will you have in twenty years?

a. $10,232  b. $15,741  c. $25,655  d. $37,143

6) Can a single provider making a profit of $75,000 invest in both a SIMPLE IRS and a Roth IRA each year?

a. Yes  b. No

7) If you invest in an index fund you are adopting what type of an investment strategy?

a. Passive  b. Active

See answers

Image credit: www.ifa-fiv.org

For more information see my book Family Child Care Money Management and Retirement Guide

May 15th is Filing Deadline for Family Child Care Associations

IRS rules require all family child care organizations who collect revenue to file an annual information return (Form 990 or Form 990N). This rule affects all family child care associations, whether or not they have a tax-exempt status. It affects an association even if the association is not required to pay taxes on its revenue.

Any family child care association that has gross receipts (dues, training or conference fees, sale of items, etc.) of less than $50,000 must file Form 990N. Associations with gross receipts of more than $50,000 must file Form 990.

 

These forms are informational, meaning that associations will not owe any federal taxes on their income when they file these forms.

The Form 990N must be filed electronically and the deadline for filing is May 15th for the previous tax year. The form itself asks for the following information:

 

Organization’s name

Any other names your organization uses

Organization’s mailing address

Organization’s website address (if applicable)

Organization’s employer identification number (EIN)

 

Name and address of a principal officer of your organization

 

The tax year (2012)

A statement that your organization’s annual gross receipts are still normally $50,000 or less, and

If applicable, indicate if your organization is going out of business.

 

If your association has obtained their tax-exempt status but fails to file the Form 990 or 990N as required for three consecutive years the IRS will revoke your tax-exempt status.

 

Unincorporated Association

Many family child care associations operate without applying for a tax-exempt status from their state. This is perfectly legal. Usually this happens when a group of providers gets together and calls themselves an association without filing any forms with their state.

 

Such associations are known as unincorporated associations. They may collect dues and keep a small amount of money in a checking account. This rule requires even the smallest of family child care associations that  has any amount of revenue to file a Form 990N. If your association does not collect any revenue you are not required to file Form 990N.

 

Image credit: epostcard.form990.org

 

Tom Copeland - www.tomcopelandblog.com

What You Should Know About Unemployment Insurance

Here are some questions and answers for family child care providers about unemployment insurance:

"Can I claim unemployment benefits for myself?"

No. The vast majority of family child care providers are self-employed (sole proprietor). As a self-employed business you don't pay a federal or state unemployment tax so you are not eligible for unemployment benefits.

If you incorporated your business and became an employee of the corporation, then under some situations where you are paying unemployment taxes you could be eligible to receive unemployment benefits.

This is logical. You can't lay yourself off and then try to claim unemployment benefits!

"Under what circumstances must I pay federal unemployment tax?"

You must pay federal unemployment tax (FUTA) if you paid an employee $1,500 or more in any calendar quarter of a year or had any employee who worked for some part of a day in any 20 different weeks during the year.

This FUTA tax rate is .6% of the first $7,000 in wages for each employee. Thus, if you paid someone $1,000 in a year you would owe $6 in taxes. If you pay $7,00 or more you would owe $42 in taxes.

Note: As of 2013 there are eighteen states in which you will pay a higher FUTA tax. These states are Arizona, Arkansas, California, Connecticut, Delaware, Florida, Georgia, Indiana, Kentucky, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Rhode Island, Vermont, Virgin Islands and Wisconsin. See more.

"Must I pay federal unemployment taxes if I hire my spouse or own child?"

You do not have to pay FUTA taxes if you hire your spouse or if you hire your own child who is under age 21.

"When and how do I pay federal unemployment tax?"

You would file an annual IRS Form 940 Employer's Annual Federal Unemployment (FUTA) Tax Return if your total FUTA tax is less than $100 in a year (or $12,500 in wages to several employees). This form is due by January 31 of the following year.

If you owe more than $100 in FUTA taxes as the end of any quarter, you must make deposits by the end of the month following the quarter.

You must either pay your FUTA taxes electronically using the Electronic Federal Tax Payment System (EFTPS) or arrange for your tax professional, bank or payroll service to make deposits on your behalf. EFTPS is free. To enroll or call 800-555-4477. For more information.

"When must I purchase state unemployment insurance?"

State unemployment taxes are usually much higher than the FUTA tax rate. Each state's rules are different, so contact your state department of labor to find out the rules for your state.

Image credit: www.nfsnet.com

Tom Copeland - www.tomcopelandblog.com

For more information about how to fill out the FUTA tax forms, see my 2012 Family Child Care Tax Workbook and Organizer.

Questions and Answers About Union Organizing in Minnesota

The AFSCME union has introduced a bill (Senate bill #778, House bill #0950) in the Minnesota legislature that would allow family child care providers to vote on whether they wanted a union to represent them. It is currently being heard in committees.

Although this is only an issue for family child care providers in Minnesota, I know that many of my readers are from Minnesota, where I live.

I have always been in support of providers being able to decide whether to create a union or not. See my open letter to providers posted on the AFSCME website.

Family child care providers have asked many questions and raised many issues around the union campaign. I believe it would be helpful to post these questions in one location and try to answer them. If you would like further clarification on any of my responses to these questions, feel free to do so on my Facebook page or send me an email (tomcopeland@live.com). Let me know if you have additional questions you would like me to try and answer.

1)   Why can’t all licensed providers vote to determine if a union should be established?

I believe in the general principle that those who are affected by a decision should have a voice in the making of that decision. The bill would only allow family child care providers who care for families that receive financial assistance from the Child Care Assistance Program (CCAP) program to vote on whether or not they want to be represented by a union. Many licensed child care providers who do not care for CCAP families are upset that they cannot participate in this vote. The reason for this opposition is that they believe it is unfair for the union to be able to negotiate on issues that would affect them. I am sympathetic to this position.

There are two bills going through the legislature. In the original language of both bills the union could negotiate on issues regarding quality standards, training, licensing and more.

Read more

IRS Tax Court Accepts a Time-Space Percentage of 93%

“I have goose bumps! I just want to jump up and down!”

So said Jeannie Peoples, a family child care provider from Curwensville, Pennsylvania, upon hearing that she owed the IRS $4,466.

The reason she was so happy is because her original auditor determined that she owed over $37,000 in taxes.

"I couldn't have asked for anything better," she said.

Her US Tax Court case is significant because the IRS recognized that a family child care provider, caring for children round the clock, is entitled to claim a Time-Space Percentage of 93%.

I represented Jeannie in her Tax Court appeal. Due to support from the National Association for Family Child Care I was able to offer my services to her without charging her a fee.

Case Details

In 2008 and 2009 Jeannie Peoples worked an average of 22 hours a day, 52 weeks a year caring for 27-36 children. She had help from her husband and other relatives.

Her original auditor allowed an 80% Time-Space Percentage but disallowed tens of thousands of dollars in business deductions. When Jeannie appealed her case the Appeals officer sided with the auditor and determined that she owed over $37,000 in taxes.

Jeannie then turned to me for help in her appeal to Tax Court. Other issues in dispute were supplies, repairs, food, advertising, depreciation, and penalties. In the Tax Court settlement we compromised on most issues but Jeannie was still allowed to deduct an average of $29,000 of supplies and over $10,000 of repairs for these two years.

We were also able to get the Tax Court to drop the $5,800 in accuracy related penalties because it was clear that Jeannie did have receipts and other records to back up her claims.

Jeannie was audited in early 2010. She lost her case before an Appeals officer in late 2011 and she filed the petition to appeal to Tax Court in 2012. It took seven months before Tax Court would hear our case.

Jeannie’s tax preparer, Jessie Reed, EA, from Clearfield, Pennsylvania, has done tax returns for 35 years and has been an Enrolled Agent since 1988. She worked hard to help Jeannie organize her records and she argued her case before the Appeals officer. Jessie put in many voluntary hours on this case that made our Tax Court appeal much easier.

I've posted a comprehensive discussion of this case, including copies of documents and letters I sent to the Tax Court.

Jeannie started caring for children 24 hours a day in 2000. In late 2009 she stopped doing so to spend more time with her own family.

Lessons

After going through this long audit process, Jeannie and Jessie have some advice for family child care providers.

Jeannie said, “Save all of your records, attendance records, everything. I used a scanner to scan my receipts into my computer and this helped a lot". Both Jeannie and Jessie agreed that it makes sense to use a tax professional who understands your business. Jessie added, “Don’t be afraid to pay a professional to do your taxes. It’s worth it in the end. Don’t be afraid to ask questions of your tax preparer. You are ultimately responsible for what’s on your tax return.”

Tom’s Comments

This is the highest Time-Space Percentage I have ever seen in cases where I have represented a family child care provider. I am handling another upcoming Tax Court where the child care provider’s Time-Space Percentage is 98% (24 hour child care). The highest percentage I had won in a previous audit was 59%.

One of the lessons to take from this audit is that you should not hesitate to claim a high Time-Space Percentage if you have the records to back it up. Keeping accurate attendance records can make a difference.

In most audits involving the Time-Space Percentage the issue is whether the provider has kept accurate records of the hours they worked after the children were gone. I cannot stress how important it is for you to keep at least two months of careful records showing your business activities after the children are gone. You can use the average for these two months for the rest of the year. This is the single most important way you can reduce your taxes! See my article on this.

Jeannie spent a lot of money on supplies and repairs. Because she saved every receipt we were able to win most of these expenses. In some cases Jeannie counted some personal expenses with her supply deductions. It’s important to separate business from personal expenses by marking each receipt to indicate whether individual items are 100% business, 100% personal, or shared business and personal.

This case should never have reached the Tax Court. For some reason the auditor and the Appeals officer failed to look closely at her records and refused to try to reach a settlement with her and her tax preparer. They denied 100% of her repairs and over 80% of her supplies by asserting that they were not “ordinary” or “necessary” or “reasonable.” It is mind boggling that the auditors denied deductions for diaper wipes, child locks, extension cords, floor cleaner, stain remover, etc.

Join NAFCC!

Because of support I receive from the National Association for Family Child Care, I was able to offer free assistance to Jeannie Peoples in her appeal to Tax Court. Their support allows me to give free advise providers over the phone or write letters on their behalf to the auditor. Sometimes, as in this case, I will represent the provider in their appeal. I urge you to contact me if you are audited at tomcopeland@live.com or 651-280-5991. Join NAFCC today and receive this free benefit of membership.

For further information about the Peoples audit:

Report Prepared by Tom Copeland for the April 3, 2013 Meeting with IRS Tax Court Official

Letter Written by Tom Copeland to the IRS Following the April 3, 2013 Meeting

Repair Memo Written by Tom Copeland to the IRS April 4, 2013

Tom Copeland Commentary on the Peoples Tax Court Case

See other Tax Court Cases

Tom Copeland - www.tomcopelandblog.com

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Provider Appreciation Day is May 10th!

Started in 1996 by a group of volunteers in New Jersey, Provider Appreciation Day is appropriately celebrated each year the Friday before Mother's Day.

This year it is on Friday, May 10th.

The founding organizers saw the need to recognize the tireless efforts of providers who care for the children of working parents.

For more information about how to celebrate this day, see www.providerappreciationday.org. The National Association for Family Child Care sells flags, certificates, pins and other items associated with this day.

I have great respect for the tens of thousands of family child care providers I have met over the past 30+ years. You are tackling a tremendously difficult job with love and hard work that often goes unacknowledged. Our society doesn't value its children and those who care for them the way it should.

Congratulations on your dedication to young children! Thank you for helping make the world a better place for us all.

Thank you!

Image credit: www.uft.org

When is it Safe for Your Association to Help a Parent Find Child Care?

As a family child care provider you want to fill any openings in your program as soon as possible.

This means you want as many parent referrals as you can get from your local Child Care Resource and Referral Agency.

These agencies offer a wide variety of programs and services for providers and parents, including a data base of family child care providers, child care centers, and other child care programs to help parents looking for care.

Not satisfied with relying on these agencies to handle parent referrals, some local family child care associations have established their own provider referral services. They pass out lists of their members to parents who call looking for child care.

Such a service is a benefit to their members and may be particularly helpful during tough financial times.

But if your association is giving out names of local providers there are some risks that come with this activity.

If the parent enrolls her child with the referred provider there is the chance that the child may be injured while with the new provider. If this happens, the parent may sue the association who gave her the referral. This is more likely to happen if the chosen provider does not carry business liability insurance. The risk of a lawsuit may be small but the consequences could be large since, at a minimum, the association being sued would probably have to hire a lawyer to defend itself.

Referral vs. Recommendation

The reason that a parent might sue the referring association is because the parent may believe that she has been given a recommendation rather than a referral.

There is a significant difference between the two.

A referral is the passing on of information about other family child care providers where the clear responsibility of the decision over which provider to choose is transferred to the parent. A recommendation is an attempt by the association passing on information to influence the parent’s decision thus retaining some of the responsibility for the decision.

A recommendation carries with it a high risk of liability while a referral does not. 

A referral includes passing out the name of more than one provider while not making any qualitative comments about the other providers: “Here are the names of four providers who live in my area who you may want to contact in your search for child care.” A recommendation sounds like this: “Here’s the name of a family child care provider, Sally Jones, who I know has a high quality program. She will be great for your child.”

If your association is passing out names of other providers to parents, it may not always be making a clear distinction between a referral and a recommendation. Failure to do so can raise the risks of a lawsuit. Here’s how to reduce such risks:

Always give out at least two names of other providers, never just one. Giving out only one name implies your association is giving a recommendation.

Give parents a written disclaimer about the names given to them that explicitly states that they are not getting a recommendation. Here’s the disclaimer given out by the Minnesota Child Care Resource and Referral Network:

“The Minnesota Child Care Resource & Referral Network makes child care referrals, not recommendations. We cannot guarantee the information concerning any providers in our files. We strongly urge parents to interview and check references carefully before leaving a child with a care provider. We do not license, endorse or recommend any particular provider, nor can we assure you that any provider gives quality care.”

Try to be as current as possible with the information being passing on. If your association gives out names of providers who have lost their license you are increasing the risk that the parent may sue when they find this out after their child is injured.

Don’t ask other providers about the rates they charge parents. It is illegal for child care competitors to discuss rates with each other. This is called price fixing (an anti-trust violation).  An association should not survey its own members about their rates unless this rate information is publicized widely.

Get the proper liability insurance to protect your association in case it is sued.

Insurance

Sometimes individual child care providers give out referrals to parents. If you do this you are taking on an additional risk because of the possibility of a parent lawsuit when a child is injured.

Your existing professional business liability insurance policy will probably not protect you in this situation. If you are involved in giving out referrals you should talk to your insurance agent about what you are doing so you can purchase the proper insurance to protect yourself.

If you belong to an association that gives out referrals you should talk to your association officers about the association purchasing adequate insurance to protect it from lawsuits.

Although the risk of a successful lawsuit against an individual provider or an association is very small, the bigger risk is being forced to pay a lawyer to defend yourself or your association from the lawsuit. Even if you win your case you must still pay the lawyer and that can be very expensive. If a child is injured and the provider involved does not have business liability insurance, the parent may be looking to sue your association.

Your association should purchase “general liability insurance” to pay for legal defense. It will also cover the risks of injury to providers, parents, and children during an association function – meetings in churches or schools; a house tour of members’ homes; a conference; or a resource table at a local fair.

In addition, your association should purchase “directors and officers insurance” to protect the organization from bad decisions made by the directors, fraud, financial mishandling of association funds, and negligence by the directors.

It’s always a good idea to talk to your insurance agent about everything your association does to make sure you are covered. The combined cost of both types of insurance will probably be around $500 a year. Here's a list of insurance companies and agents that cover family child care providers and associations.

If you or your association is not properly covered by insurance you should stop offering referrals to other providers. Instead, tell parents to contact the local Child Care Resource and Referral agency that also offers parents written and counseling help on how to find a quality provider as well as referrals to other parent support organizations, and other community resources.

If your association has concerns or complaints about how your local Child Care Resource and Referral agency is offering assistance to parents or how they are making referrals, talk with them. Don’t assume that they won’t listen. There are many ways the referral agency can help your local association be more successful. See my article "Using CCR&R to Promote Your Program."

Thanks to Debe Marofsky of Affiliated Insurance, Inc. for her help with this article.

Tom Copeland - www.tomcopelandblog.com

Image credit: www.masskidcare.net 

IRS Expands Relief to Providers Who Hire Assistants

When you pay someone to help you care for children in your family child care business are you treating them as an employee or an independent contractor?

Except for a few narrow exceptions, you should be treating them as employees. This is true regardless of how little you paid them or how few hours they worked for you.

This means withholding Social Security/Medicare taxes, paying federal and state unemployment taxes, and purchasing workers' compensation insurance. I've written articles about this here and here.

Many child care providers fail to property treat their workers as employees and face stiff penalties and interest if audited. The IRS can audit back three years, so these back taxes can add up.

Relief

In 2011 the IRS announced a program that gives relief to child care providers who have been improperly treating their employees as independent contractors. It's call the Voluntary Classification Settlement Program (VCSP).

See my previous article on the VCSP.

Under this program, the IRS will agree not to audit past tax returns to try and collect back payroll taxes. In exchange, child care providers (and other employers) agree to pay a fine of about 1% of the past year's wages they paid. This means you would owe $10.68 for every $1,000 of wages you paid last year.

New Relief

Under the original eligibility rules of this program, child care providers must have issued IRS Form 1099 for their workers for the past three years before they could participate. A recent IRS announcement (IRS Announcement 2012-46) has eliminated this requirement if child care providers sign up before June 30, 2013.

So, you can avoid paying past taxes and penalties even if you did not issue IRS Form 1099 in previous years.

The new rules also allow you to sign up for this program even if you are being audited. Also, the original rule allowed the IRS to audit your tax returns from 2013 and forward for six years (instead of the normal three years). This burden has been eliminated under the new rule.

Some child care providers may be hesitant to participate in the VCSP because they are hiring undocumented workers or are afraid the IRS will notify their state department of taxation and subject them to a state audit. The VCSP rules prevent the IRS from sharing your information with either the Department of Labor or your state tax department.

To apply for this program, fill out IRS Form 8952 Application for Voluntary Classification Settlement Program. I've written instructions on how to fill out this form.

For more information on VCSP go here and here.

Take Action

If you have not been properly treating your workers as employees, take advantage of these new relaxed rules and fill out Form 8952 before June 30, 2013. It's well worth it!

Tom Copeland - www.tomcopelandblog.com

For further information on how to fill out federal employment payroll tax forms, see my 2012 Family Child Care Tax Workbook and Organizer.

Should You Hire Your Child Who is Age 18 + or Your Husband?

The simple answer for a family child care provider is - only in a few unique situations.

If you pay your own child who is age 18 or older or if you pay your husband to do work for your business you must treat them as your employee.

This means withholding Social Security/Medicare taxes and withholding federal and state income taxes. If your child or husband is over age 21 you must also pay federal unemployment tax. Although you can deduct these taxes as a business expense, your child or spouse must report their earnings as income on their IRS Form 1040. Therefore, there is little tax advantage to paying them.

If you do hire your own child or spouse you must also keep specific records and file a series of tax forms. The IRS requires you to file Form 941 quarterly or Form 944 annually, Form W-2 and Form W-3. Here is my article (Hiring Family Members) that spells out the record keeping requirements.

The rules are quite different if hire your own child who is under age 18. See my previous article: "How to Hire Your Own Children Under Age 18."

A warning: Check with you state workers' compensation office to see if you must purchase workers' compensation insurance when hiring family members. Most states will not require this. However, in some states (New York being one that I know of) you must purchase workers' compensation insurance for anyone who is with you when caring for children. This includes volunteers and family members (even if you don't pay them!).

Reasons to Hire

There are a few situations where you may want to consider hiring your own children or your spouse:

* You want your children to learn the value of work and understand how to manage their own money.

* You want your children or spouse to earn wages to increase their lifetime Social Security benefits. The more they earn the more they will receive from Social Security.

* Your family has at least $1,000 of medical expenses that are not covered by insurance (this includes medical insurance premiums your husband pays at work). If you are in this situation you can establish a medical reimbursement plan (a Section 105 plan) that allows you to deduct 100% of all your uninsured medical expenses as a business deduction. For more information see my articles (When Hiring Your Husband Makes Sense and How Can You Deduct Family Medical Expenses?).

Simple Solution

If your children or your spouse are working for you, you are not required to pay them! If you treat this as a personal family matter then there are no tax consequences. You don't have to keep any records or file any tax forms. You can give them money or gifts for their work, but this would be done as a personal transaction. They are helping you and you are helping them because you are family. They wouldn't report as income any money or gifts you gave them and you cannot deduct as a business expense anything you give them. However, be sure to check with your state workers' compensation office to see if you must purchase insurance when they are helping you care for children, even if you aren't paying them as an employee.

Tom Copeland - www.tomcopelandblog.com

Image credit: www.picturesof.net

For more information on hiring family members see chapter 8 in my book 2012 Family Child Care Tax Workbook and Organizer.