As a self-employed business, family child care providers must pay 15.3% Social Security/Medicare taxes on their business profit.
The amount of this tax is calculated on IRS Schedule SE Self-Employment Tax.* Take the profit from your Schedule C, line 31, and enter it on line 2 of Schedule SE. Once you calculate your Social Security/Medicare tax on line 5, transfer the tax to your Form 1040, line 57.
You should then enter the amount from Schedule SE, line 6 (which is half your Social Security/Medicare tax) to Form 1040, line 27. This will help reduce your federal income tax.
You do not pay Social Security/Medicare taxes separately. Instead, they are included on your Form 1040 and added to your federal income tax.
To avoid paying a penalty for not paying in at least 90% of the taxes your family owes each quarter of the year, either have your spouse withhold enough in taxes to cover your Social Security/Medicare and income taxes, or you must file quarterly estimated taxes, using IRS Schedule ES Estimated Taxes.
You want to be sure that you file Schedule SE each year to report your Social Security/Medicare taxes. This form is used by the Social Security office to determine your Social Security benefits. I strongly recommend checking the Social Security website each year to make sure that your earnings are reported on your annual Social Security statement.
I once spoke with a provider who told me she made a profit, but there was no reported earnings on her Social Security statement for the past two years. This could only mean that her tax preparer didn’t file Schedule SE or there was an error within the Social Security office. You want to fix any such problems now, rather than finding out later when you receive a lower Social Security benefit than you are entitled to.
Tom Copeland – www.tomcopelandblog.com
Image credit: www.irs.gov
- Note: Fill out Section A on the front page, not Section B on the back of the form.