Are Childcare Expenses Considered Personal Services?

I just received an email from a reader who wanted me to correct my statement in my earlier “ask the taxgirl” post that “[i]ndividual taxpayers generally do not provide forms 1099-MISC for payments made to vendors for personal services” because she believes that “childcare expenses are personal services that require a 1099-MISC.”

I appreciate the email because it gives me a chance to clarify my answer and also clear up a misperception.

The IRS requires you to treat most home child care workers as household employees - and not as independent contractors. There are exceptions to this rule, including part-time babysitters under the age of 18; this exception does not apply if performing household work is the minor’s principal occupation. A good rule of thumb is that if the employee is a student, providing household work is not considered to be his or her principal occupation.

As a general rule, you have a household employee if you hired someone to do household work and that worker is your employee. The worker is your employee if you control what work is done and how it is done. It does not matter whether the work is full time or part time or that you hired the worker through an agency. It also does not matter whether you pay the worker on an hourly, daily, or weekly basis, or as a project.

Household employees may include child care providers, cleaners, drivers, health aides, private nurses, cooks, maids and yard workers.

Household employees do not include repair persons, plumbers, general contractors and the like; the latter are considered self-employed persons. A self-employed person controls how the work is done. A self-employed worker also usually provides his or her own tools and offers services to the general public in an independent business. In other words, his or her services are not restricted to you.

What does this mean? If the worker is considered a household employee, you may be responsible for payroll taxes in which case you would submit a form W-2 and not a form 1099.

It is possible - though not terribly common - that someone who provided personal services would not qualify as a household worker and would be an independent contractor for tax purposes. If you think this might apply to you, I would urge you to consult with a tax professional.

If you’re stymied about the childcare rules, you can read more about the deductibility of child care expenses at my prior post.