"How Do I Pay Myself?"

This is a common question I hear from both new and experienced family child care providers. The answer depends.

If you are set up as self-employed (sole proprietor) or a partnership

In these situations, since you are not an employee, you simply take money out of your business any time you want. So, if you deposited your business income into a business or personal checking account, you can write your self a check or use your ATM to get cash for yourself.

There is no tax consequence for taking money for yourself. You can't deduct what you take for yourself. You will pay taxes on your profit (business income minus business expenses). Any money left over is yours, whether you leave it in your bank account or spend it. Therefore, you don't "pay yourself" like an employer would pay their employee. The money is always yours.

If you are set up as a corporation

In this situation you are an employee of the corporation and are paid a salary by the corporation. The corporation should be withholding Social Security/Medicare taxes, and paying federal and state unemployment taxes. Any profit the corporation makes is either distributed to your or your shareholders, or both.

Exception: If you are set up as a single person Limited Liability Company (LLC) you must keep your business and personal records separate, like all other corporations. However, as a single person LLC you are not an employee of the corporation. Therefore, you can take money out of your business checking account at any time, in the same way as a self-employed person.

Note: The vast majority of family child care providers are self-employed. To operate under any other type of business structure gets complicated quickly. Don't form a corporation or partnership without consulting with an attorney and tax preparer to understand all the legal and tax issues involved.

See also my Family Child Care Legal and Insurance Guide for a detailed discussion.

Tom Copeland - www.tomcopelandblog.com

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