Can I Deduct an Unpaid Child Care Bill?

Unfortunately not. I know from my travels around the country that many family child care providers do not receive all the money that is owed them. This problem is more severe during financial hard times.

Here are some situations where this occurs:* A parent bounces a check or leaves owing money for child care provided.* A parent leaves without giving proper notice under the contract and doesn't pay for the last two weeks of care.* A child care subsidy program declares that a parent is no longer eligible and tells the child care provider she will not be paid.

In all of these situations, there is an unpaid child care bill and the child care provider is owed money. Unless she pressures the parent to pay, or takes the parent to court, she will have less income at the end of the year. How should this be treated on her tax return?

You must report all money you received caring for children on IRS Form Schedule C. If you didn't receive money you earned, you do not report it as income. However, money you earned but didn't receive cannot be reported as a business expense. If the parent owes you money in 2021 and you collect it in 2022, report it as income in 2022.Similarly, you cannot deduct a discount (or a scholarship) you give to a parent. See my article, "I Gave a Discount to a Parent. Can I Deduct It?"

Because you will be reporting less income, your taxes will be lower. I realize that this is small consolation.

The only way to be sure you are not owed money is to require parents to pay in advance. See my article, "Don't Let Parents Leave Owing You Money." When caring for subsidized families, you may or may not be able to require parents to pay in advance. Check with your subsidy worker.

Tom Copeland - www.tomcopelandblog.com

Image credit: https://freesvg.org/unpaid-bills-vector-illustration