Do Daycare Providers Need Tax ID Numbers?

If you provide day care services, you are required to have a taxpayer identification number. The IRS uses this number to cross-reference your income records with your client's child care expense records. Unless your day care is tax-exempt, failure to supply your clients with a taxpayer identification number is illegal.

Significance

• Your clients need your taxpayer identification number to claim child care expenses on their taxes. IRS Form W-10 is the standard form day care providers supply to parents at the end of the year. The W-10 form calls for your name, address and taxpayer identification number. If your day care organization qualifies as a tax-exempt provider, you are not required to disclose your taxpayer number to clients, according to the IRS. In this case, write "tax-exempt" on the W-10 rather than your number.

Options

• You have three options when providing a taxpayer identification number. In most cases, parents need either your Social Security number or your employer identification number, or EIN. The IRS has modified the qualifications for obtaining an EIN to allow providers without employees to apply. The third option applies to nonresident and resident aliens who do not meet the eligibility requirements for obtaining a Social Security number. In this case, you need to supply parents with your individual taxpayer identification number, or ITIN.

Factors

• The National Association for Family Child Care recommends that day care providers use employer identification numbers in lieu of Social Security numbers to protect privacy. Regardless of which option you choose, supplying your providers with an identification number is required by law. Unless you are a tax-exempt provider, you risk a $50 penalty for each time you fail to provide a taxpayer identification number to a client, according to the IRS.

Expert Insight

• The IRS provides an online application for requesting an EIN. You can also call the IRS at 800-829-4933 to apply by phone. Unless you are hiring employees, the National Association for Family Child Care advises that you state "started a new business" as your reason for requesting an EIN. This is the appropriate response even if your business is well-established.

Considerations

• The deadline for supplying parents with your taxpayer identification number is January 31 of the year following that in which services were provided. At this time, you also need to provide parents with a receipt of payments received for child care. You must provide clients with your taxpayer identification number even if you are not required to file a return, according to the IRS.