What is considered daycare income?

Let’s start by looking at daycare income: what it is and how to report it.

As a daycare provider, you generally receive income from several sources. For example, you may accept direct payments from parents or guardians or the employee benefit plan of a parent or guardian. Alternatively, subsidy payments from state and local agencies or charitable organizations may go toward specific children in your care. You may also receive income from selling assets used in your daycare business or through grants from the state, local, or private agencies. Finally, expenses you incur may also be reimbursed through programs such as the Child and Adult Care Food Program (CACFP).

Like many forms of income, you need to report your daycare income to the IRS.

How do you report income as a daycare provider?

Because you are providing daycare services intending to make a profit, the IRS considers any money you make to be self-employment income, which most daycare providers must report along with their expenses on Schedule C (Form 1040). Additionally, if your net income (minus expenses) is $400 or more, you may also need to file Schedule SE (Form 1040) and pay self-employment taxes.

All of the examples of income types cited above are included in your daycare gross income. Furthermore, grants made directly to your business are generally included in business income — if you spend the grant money in your daycare business, you can deduct those expenditures. To do so, most tax professionals recommend you include reimbursements in your gross business income, then claim a deduction.

Even if you operate your daycare business as a sole proprietor or have no employees, obtaining an Employee Identification Number (EIN) is still a good idea. Instead of your Social Security Number, use your EIN on business tax filings like Form W-10, Dependent Care Provider’s Identification, and Certification.

You can also use your EIN for your business bank account, which you use exclusively for depositing daycare income and paying daycare expenses. Having a bank account exclusively for business income and expenses will make your life much easier in terms of record-keeping, as long as you also keep careful track of deposits from your personal funds and reimbursements you make to yourself.

Deposit all your daycare income, including cash payments, into the business bank account, and use a check or debit card associated with that account to pay for business expenses instead of withdrawing cash.

If you do not have a dedicated credit card for business expenses, keep careful track of any daycare expenses you charge to your personal card.

Can you claim daycare expenses on taxes?

Next, let’s look closer at the expenses side of the equation.

The IRS allows all businesses to deduct expenses that are ordinary and necessary. Below are some examples of childcare expenses that meet this qualification.

First, however, it’s essential to make sure you are maintaining careful record-keeping. Your method should clearly show your daycare income and expenses. Whether you use a hand-written ledger, spreadsheets, or business software, ensure that you keep the following additional records up-to-date as well:

  • Daily time log for the hours you spend in preparation, planning, record-keeping, food preparation, clean-up, etc., in addition to the actual hours you are available for daycare.
  • Attendance, rates, payment history, and meal and snack log for each person in your care.
  • Mileage records for the use of your car in the daycare business.
  • Home-related expenses

What are examples of childcare expenses?

Some examples of expenses the IRS may consider ordinary and necessary for your daycare business (and therefore potentially deductible) include the following. Please note that this list is not all-inclusive.

  • Advertising, such as print and online ads, business cards, and business logo items, such as t-shirts.
  • Auto expenses, including business miles (transporting children, shopping, education, meeting with parents, etc.), parking, and tolls.
  • Bank charges, such as business bank accounts and check-printing fees.
  • Dues and publications, including your daycare license, membership in a daycare organization, and daycare magazines and books for you or the children.
  • Education, like daycare seminars and classes.
  • Employee-related expenses, including wages, payroll taxes, workers’ compensation, and employee benefits. •
  • Reimbursement of expenses.
  • Insurance
  • Legal and professional services
  • Accounting and tax preparation fees
  • Office supplies
  • Record books and calendars
  • Rent, such as the building (if not operating the daycare in your home), as well as rental of things like toys, equipment, or DVDs
  • The business portion of household supplies, such as cleaning supplies and paper goods.
  • Children’s food, supplies, games, toys, crafts, and so forth.
  • Diapers, wipes, spare clothing
  • Daycare business telephone line, daycare-related extra features added to a basic landline, or the daycare portion of your cell phone use.
  • Other expenses, such as admission to a zoo, museum, or special event for children.

How do you calculate childcare expenses?

Regarding daycare food, you don’t necessarily need to keep track of every penny spent for children in your care. Instead, you can use the standard meal and snack rates. Those rates for 2022, by location, follow in the table below.


2022 Rates by Location Breakfast Lunch, Dinner* Snacks (up to 3)
Continental US $1.40 $2.63 $0.78
Alaska $2.23 $4.26 $1.27
Hawaii $1.63 $3.08 $0.91
*Lunch and dinner, allowance for each

Part of the cost of maintaining your home may also be deductible as a business expense. However, some qualifications apply. For example, you must have (or be exempt from having) a license or other approval to operate your daycare business under state law.

Suppose you do meet all necessary qualifying conditions. In that case, you can deduct the business portion of some of your home-related expenses, such as real estate taxes and mortgage interest, casualty losses, qualified mortgage insurance premiums (if available), and more. These expenses are deductible whether or not you are in business.

Other expenses are deductible only if deducted for your business. These include homeowner’s insurance and association dues, rent (if renting your home), repairs and maintenance, security systems, utilities and services, and depreciation (subject to certain limitations).

You can calculate your home business-use percentage using the number of hours spent on daycare activities during the year and the area you regularly use for daycare compared to the total square footage of your home.

Would you like some help?

If you are a client and would like to book a consultation, call us at +1 (212) 382-3939 or contact us here to set up a time.

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