Some family child care providers continue to question whether it’s worthwhile or not for them to join or stay on the Food Program.
It’s always financially beneficial for you to be on the Food Program!
Here are some frequently asked questions from providers who question this.
Question: My Food Program sponsor tells me that my Food Program reimbursements are not taxable income. Is this true?
Answer: No! Reimbursements you receive from the Food Program are taxable income. (The only exception to this rule is any reimbursements you receive for your own children are not taxable.)
Some people think that this is a reason not to participate on the Food Program. Wrong!
Let’s look at an example: Natasha Provider is not on the Food Program, earns $30,000 from parents and spends $5,000 on food. She can deduct the $5,000. She then joins the Food Program and receives $4,000 in reimbursements from the Food Program. She now reports $34,000 in income and $5,000 in food expenses.
You don’t lose your ability to claim the same amount in food expenses just because you join the Food Program!
So, her income is now $4,000 higher, meaning she will pay more in taxes because of this extra income. If she is in a high tax bracket of 45% (25% federal income tax, 15% Social Security tax, and 5% state income tax) she will owe an additional $1,800 in taxes.
Is paying more in taxes a reason to refuse to join or quit the Food Program? No. Natasha has an extra $2,200 in her pocket, after taxes ($4,000 income – $1,800 taxes = $2,200).
Another way of saying this is if Natasha was on the Food Program and then quit, she would lose $2,200 in after-tax income.
So, even though Food Program reimbursements are taxable income, you are still better off financially after joining.
Don’t I lose money on the Food Program because the lower (Tier II) reimbursement rate doesn’t cover the cost of my food?
Is it really worth doing all that paperwork for a 20-cent snack (current Tier II rate)?
Childcareinfo.com is a community for family child care providers and parents that offers a wide variety of resources including recipes, a blog, and a newsletter. It serves as a clearing house for many online resources (children’s activities, training opportunities, equipment, and more).
Childcareinfo.com was created by Minute Menu to offer free assistance that will help the family child care community grow.
Tom Copeland – www.tomcopelandblog.com
Image credit: nutrition.nv.gov
For additional information about the Food Program and deducting food expenses, see my book Family Child Care Record Keeping Guide.