How to Handle Reimbursements or Stipends from Family Child Care Associations

An increasing number of family child care associations are reimbursing their board members and officers for the costs of attending association meetings.

What are the tax consequences of such payments?

Expenses of association officers or board members, paid by the association to reimburse the costs of attending association meetings are not taxable income to the association officer or board member. Such out-of-pocket expenses may include:

Mileage payment ($.56 cents per mile is the 2021 federal standard mileage rate)

Bridge, ferry or road tolls

Parking expenses

Payments to a substitute so the provider can attend the meeting

The association should approve a written policy about payments of such expenses and include their policy with the official records of the association. The association should require the board member or officer to submit receipts or other records showing that such expenses were incurred.

Board members should not show such payments as income on their tax return. The board member should keep a copy of their receipts as well as records showing that the source of the payments was the association, in case of an audit.

Direct payments

Direct payments by an association to a board member or officer to attend an association meeting are taxable income. An example would be if an association paid a stipend of $25 for its board members to attend board meetings.

If an association paid a $25 stipend to board members and said that such payment could be applied to members’ parking and other expenses, such stipends would also be taxable because they were not reimbursements for specific expenses.

Such stipends should be reported on the individual’s Schedule C as Other Income. The association must issue a Form 1099 Miscellaneous at the end of each year for each person it paid more than $600 in stipends.

The above rules apply in the same way whether the association is unincorporated or is a non-profit corporation.

Tom Copeland - www.tomcopelandblog.com

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