For more than 30 years R. Patrick Michael has been preparing tax returns for individuals, small businesses, cottage industries and in-home child care providers. Pat is a recognized child care provider tax expert, and has been providing educational seminars for child care providers in San Diego County for the YMCA Child Resource Services for more than 18 years. Pat and his team have built a following that is comprised of long-term clients, new relationships and word-of-mouth referrals. Child Care Tax Specialists take care of their clients year-round with tax preparation, business entity creation and support, as well as tax planning for retirement, and estate planning.
How should you handle parents who are divorced or separated when it comes to providing receipts?
As a good practice, we advocate our child care providers issue receipts whenever they are paid. Do you have to do this? No, it just makes your record keeping easier.
The question here is when you have a child in your care, whose parents are separated or divorced, which parent do you give the receipt to? The short answer : you only give a receipt to the person who actually paid you. Make it one of your business rules, and let parents know (and include in your program materials).
But what do you do if you find yourself in a situation where one of the parents comes to you and says they have been paying the other parent for your child care services… and they need the receipt to declare it. Advise the parent that they will have to speak to the other parent because you only issue receipts to someone who has directly paid you and they will have to speak to the other parent if they are planning to claim a child care tax credit.
What happens if both parents, separated or divorced, have paid you. If you have kept a register of who paid when, then add it up and give each parent a receipt for the amount they paid. If you didn’t keep it separate, then, according to Tom Copeland, “give each of them the same receipt and mark “Duplicate” on each receipt”.
Does talking about rate increases with your client make you uncomfortable?
You’re not alone. Many child care providers feel awkward talking about rates and fee increases with their clients. However, just as many of your clients get annual reviews and increases in their job-related compensation, it isn’t unreasonable for you to need to adjust your rates if only to meet inflation.
If you prefer not to increase your rates across the board, maybe just one of your specialty services might be appropriate, such as infant care. Those clients who rely on you to care for their infant, understand the demands are greater with infants, and are more likely to understand paying more for it.
So what is a reasonable increase?
I always stress in my Taxes & Recordkeeping Seminars for the San Diego Chapter of the YMCA Child Resource Services, that child care providers cannot discuss their rates with other child care providers. It’s against the law. If you need guidance in determining what is a fair rate based on your regional market, consult with Child Resource Services in your area. In San Diego, you would contact Child Resource Services, YMCA of San Diego County.
You will want to consider how often you should raise your rates. Best practices says to not raise them more than once a year, but refrain from locking yourself into that by not putting any rate limiting information in a contract. Things change, and you want to stay as flexible as possible.