Questions and Answers from the "What the New Food Program Changes Mean to You" Webinar

Starting July 1st, all providers who currently receive the lower Tier II reimbursement rate from the Food Program will receive the higher Tier I rate for the next 12 months.

I presented a webinar on “What the New Food Program Changes Mean to You” on June 8th. In it I covered:

• Why you should be on the Food Program

• What do the new Food Program changes mean

• How can the KidKare software program help

Here is a link to a recording of this webinar.

Here is a link to the power point slides from this webinar.

Here’s a summary of what these new changes will mean:

• There will be no change for providers already receiving the Tier I rate.

• The current Tier I rate is $1.39 breakfast; $2.61 lunch/supper; $0.78 snack (See below for the rates for Alaska and Hawaii).

• We won’t know the new 2021/2022 reimbursement rate until sometime in July.

• This represents a 48% increase for providers currently on Tier II: From $595 to $1,242 per child per year (assuming you serve breakfast/lunch/snack each day).

• Your Food Program sponsor will automatically reimburse you at the higher Tier I rate.

• All providers who join the Food Program now will get the higher Tier I rate.

Here are some basic rules about the Food Program and claiming food expenses:

• You must report reimbursements you receive from the Food Program as taxable income (Exception: reimbursements you may receive for your own children are not taxable income.

• Food served to your own children is never deductible.

• You can deduct food expenses using either the standard meal allowance method or the actual food cost method.

• If you use the standard meal allowance method you can deduct up to one breakfast, one lunch, one dinner and three snacks per day per child.

• You are always better off financially by being on the Food Program. That’s because you will always have more money after paying taxes on Food Program reimbursements.

Here are some of the questions asked during the webinar.

New Food Program Rules

Q: What will be the new Food Program reimbursement rates for July 2021 through June 2022?

A: We don’t know yet. The new rates will be announced sometime in July.

Q: Will these higher rates be paid automatically?

A: Yes, if you are now receiving the Tier II rates, you will not have to do anything to get the higher rates.

Q: Are weekends going to be paid at a higher rate under the new rules?

A: No. Meals and snacks served on weekends will be reimbursed at the same rates as all other days.

Q: Can I be reimbursed from the Food Program for meals/snacks I serve to my own children under the new changes starting in July?

A: Normally, providers cannot get reimbursed for their own children unless their own family is considered low income under Food Program rules. As far as I know, this has not changed under the new rules.

Q: Will the higher reimbursement rates only apply to providers now on Tier II?

A: Yes. Providers receiving the current Tier I rate won’t be affected by this new rule.

Q: If the new rates are effective as of July, we won’t see the payments until August or later, correct?

A: Correct.

Q: How will I know what the new standard meal allowance rates are each year?

A: These new rates will be released each July by the federal government. I will post the rates on my website as soon as they are released.

Q: Will taxes be taken out of the higher reimbursement rates I’ll receive in July?

A: No. Taxes are never taken out of Food Program reimbursements.

Q: Will the Food Program be giving grants to providers who were closed?

A: No. However, your state will soon be issuing grants to providers. I’ll be doing a webinar on this on June 26th. Watch my website for an official announcement of this and instructions on how to register for this free webinar.

Q: Do I have to be a registered provider to be on the Food Program?

A: Each state has its own rules about who can be on the Food Program. Contact a local Food Program sponsor to find out if you are eligible.

Claiming Food Expenses

Q: How can I claim food expenses?

A: You can either use the standard meal allowance method or the actual food cost method. You must use either method for all food expenses in a year.

Q: What is the standard meal allowance method?

A: This method allows you to claim food expenses without saving any food receipts. You can claim up to one breakfast, one lunch, one supper and three snacks per day, per child if you serve that many. For 2021 you can deduct $1.39 for breakfast, $2.61 for lunch and supper and $.78 per snack. The rates for Hawaii are: $1.62 breakfast, $3.06 lunch/supper and $.91 snack. The rates for Alaska are: $2.22 breakfast, $4.24 lunch/supper and $1.26 snack. These rates can be used by all providers, whether you receive the higher Tier I reimbursement rate or the lower Tier II reimbursement rate. These rates can be used whether you are on the Food Program or not, or whether you are licensed or not. These rates are for food served for the entire 2021.

Q: I thought the standard meal allowance method could only be used for Food Program meals?

A: No. You can get reimbursed for up to three servings a day, per child, from the Food Program, but you can deduct up to six servings a day.

Q: What is the actual food cost method?

A: You can choose to deduct the actual cost of food served to the children in your care. If you are using the actual cost of food method, there is no limit as to how many meals and snacks you can claim. To use this method, you must save all business and personal food receipts and estimate the actual cost. There are a number of ways you can do this: buy food separately, calculate your own actual cost per meal and snack, determine the percentage of the total cost of food that is for your business, among other ways. My book Family Child Care Record Keeping Guide lists six ways to estimate your food expenses using this method.

Q: Which method is better: the standard meal allowance method or the actual food cost method?

A: The vast majority of providers use the standard meal allowance method because the record keeping is easier. No need to save any food receipts. A few providers may be spending more on food that the standard meal allowance method allows, so for them, the actual cost method may be a better option. Many providers find that their food costs are lower than the amount they can deduct using the standard meal allowance method.

Q: Can I deduct the cost of food served to my own child?

A: No. If you get reimbursed by the Food Program for meals and snacks served to your own children, this money is not taxable income. But you can never deduct the cost of food served to your own children whether or not you get reimbursed for them. This is true even if you pay your children to help you in your business.

Q: Can I deduct meals served to my assistants?

A: Yes. You can either use the standard meal allowance method or deduct the actual cost of the food.

Q: Can I deduct meals served to an 11 and a 12 year old who helps me in the summer?

A: Yes.

Q: Can I deduct meals served to my grandchildren?

A: Only if you are being paid to care for your grandchildren at the time they are served food.

Q: Can I deduct meals served to my foster children?

A: No. Foster children are treated in the same way as your own biological children.

Q: Does it matter if I serve an AM snack before breakfast?

A: If you are on the Food Program, you must follow Food Program rules about when meals and snacks can be served and how much time must pass between servings. However, when deducting meals and snacks that are not reimbursed by the Food Program, you can serve food whenever you want, including serving a snack before breakfast.

Q: Can I deduct a dinner served at 3:30pm?

A: Maybe. Your Food Program sponsor may or may not allow you to get reimbursed for this as a dinner. Can you deduct this if you are not being reimbursed for this serving? The IRS rules do not address the question of when meals and snacks can be served and when you can call a serving a dinner or a snack. I would assume that it may be possible to count a dinner that is served at the end of the day to a child.

Q: I had to close due to COVID but didn’t suffer a loss of income because parents continued to pay me. Since I didn’t serve any meals or snacks during that period of time, I assume I can’t count any food deductions, true?

A: True.

Q: If we go to the park to eat lunch, can I count this as a food expense?

A: Yes.

Q: I serve three meals and two snacks a day to the children in my care. Can I still deduct a popsicle as a snack?

A: Yes. The standard meal allowance method allows you to deduct up to three snacks per day, per child.

Q: If I serve a child seconds at lunch, does that count as another lunch?

A: No. You can only deduct one lunch a day, using the standard meal allowance method. It wouldn’t count as a snack unless the child left the table, you cleaned up after the lunch and then served something to the child. Food Program rules may limit how soon you can get reimbursed for serving a snack after lunch. However, if you are not being reimbursed for an afternoon snack, there is no amount of time you must wait before deducting an afternoon snack.

Q: I serve breakfast, morning snack, lunch, and afternoon snack. If I pass out a cracker to children as they leave at the end of the day, can I count this as a snack as well?

A: Yes. Using the standard meal allowance method, you can deduct up to three snacks per day, per child. Snacks not reimbursed by the Food Program do not have to be nutritious, so a cracker counts as a snack.

Q: I thought children had to stay and eat a meal or snack in order to claim that meal or snack.

A: That is true when claiming the meal for reimbursement. However, you can still deduct a meal or snack that is eaten away from your home if the meal or snack is not being reimbursed by the Food Program.

Q: Can I deduct food I give to parents to take home?

A: Yes. Don’t use the standard meal allowance rates to deduct this food. Instead, estimate the actual cost of the food and add it to the food expense for the children.

Q: Can I deduct meals and snacks I serve on Saturdays and Sundays?

A: Yes.

Q: Can I deduct a dinner served to children who are picked up two hours after my closing time?

A: Yes!

Q: Can I deduct the cost of a birthday party as a food expense?

A: If the birthday party takes the place of a meal (lunch) then count this as a lunch when using the standard meal allowance method. If it doesn’t take the place of a meal, then deduct the cost as an Activity expense.

Q: If the parents bring formula for their infant, can I count this as a meal served?

A: Ask your sponsor if this can be claimed as a meal or snack.

Q: Can I deduct special foods for children such as almond milk, goat milk, baby food, or food served to a child who has allergies”

A: If you use the standard meal allowance method, you can’t deduct any extra cost for special food beyond the standard rates. If you use the actual food cost method, you can deduct the actual cost of this special food.

Q: I feed a few children in the neighborhood on the weekends who are not enrolled in my program. Can I deduct this?

A: No. Since you are not being paid to care for children in the neighborhood, they are not part of your business and therefore food served to them are not a business expense.

Q: If I have a child that comes after breakfast, can I claim a breakfast, lunch, afternoon snack for the other children, but snack, lunch, afternoon snack for the late child?

A: Yes.

Q: I serve an early and late breakfast but have some children who eat both. Do I count this as two breakfasts, or one breakfast and one snack, while the second breakfast is a late breakfast for the other children?

A: You can only deduct one breakfast per day when using the standard meal allowance method. But you can deduct the second “breakfast” as a snack.

Q: Are the rules the same for a group home child care as a family home?

A: You can use the standard meal allowance rate as a family child care provider. You cannot use these rules if you operate a child care center out of a commercial space.

Q: I have a child who is in my care for 24 hours straight. I serve her 3 meals and 3 snacks. Can I get reimbursed for all the meals instead of 2 meals and a snack?

A: No. Food Program rules only allow you to get reimbursed for either 2 meals and a snack, or 2 snacks and a meal. You can, however, deduct all six servings.

Q: Can I deduct the $10 for chicken nuggets from the store and then deduct the $2.61 for the lunch per child?

A: Nope. Nice try. When using the standard meal allowance method, you can only deduct $2.61 for a lunch or supper, regardless of the actual cost of the food.

Q: I care for a children who are age 13 and older, but not on the Food Program. Can I deduct the cost of food served to them?

A: Yes.

Tax Consequences

Q: My accountant uses my food reimbursements as my food expense. Is this a good idea?

A: No! It’s not a wash! Your Food Program reimbursements will never equal your food expense. You should report the amount you get from the Food Program as income. Exception: Reimbursements for your own children are not taxable income. Report your food expenses using either the standard meal allowance method or the actual food cost method. Either way, they will never match your Food Program reimbursements. That’s in part because the reimbursement rate changes each July. Secondly, if you serve even one extra snack that is not reimbursed by the Food Program, your food expense will be larger than your reimbursement. Lastly, if you have been receiving the lower Tier II reimbursement, your food expenses are probably at least twice as much.

Q: If I use the standard meal allowance method and it is more than my Food Program reimbursements, will I have to pay taxes on the entire amount? For example, if I get $3,000 from the Food Program and my standard meal allowance deduction is $3,300, do I still pay taxes on the $3,000?

A: You should report $3,000 as income and $3,300 as a food deduction.

Q: Where do I report my food deductions: on Schedule C or Form 1040?

A: If you are self-employed, report your food deductions on Schedule C. List them as an “Other Expense” on one of the blank lines on the back of Schedule C. Your profit from Schedule C will get transferred to Form 1040.

Q: Can I resign from the Food Program?

A: Yes. But if you do so you will lose a lot of money. If you were receiving $4,000 a year from the Food Program and quit, it would be the same impact financially as if you lost a parent who was paying you $4,000 a year.

Q: My Food Program sponsor does not issue a Form 1099 at the end of the year showing how much money we received. Do we still need to report this as income?

A: Yes. Most sponsors do not issue Form 1099. Food Program reimbursements are reportable as taxable income whether or not you receive this form.

Q: Can I deduct disposables that I buy when serving food, such as paper plates, cups, etc.?

A: Yes, you can always deduct such non-food items in addition to claiming food expenses.

Q: How do I make money by being on the Food Program if the cost of the food is more than I receive in reimbursements?

A: You are always entitled to deduct food costs in same way whether you are not the Food Program or not. So, even if the reimbursements you receive are less than the cost of the food, it’s better than receiving nothing! For example, if you spent $5,000 on food and got $4,000 from the Food Program, you would still be able to deduct the $5,000. And now you have $4,000 more in income than you had before being on the Food Program.

Q: Can I use food stamps to buy food?

A: Yes. If you do, you can still deduct the food you serve using the standard meal allowance method. If you use the actual expenses method, you won’t be able to deduct food purchased with food stamps.

Record Keeping

Q: How do I keep records of all the meals and snacks I serve?

A: Your monthly claim form is the only record you need to deduct meals and snacks reimbursed by the Food Program. To track non-reimbursed meals and snacks, you should have a daily attendance record and a record of the number of meals and snacks served to each child. For example, to track an extra snack your record should show: “Monday, July 12th, Louise, Audrey, Michael, Maria – PM snack.” That’s it. You don’t need a food receipt or any record of what the snack was. You can track them in the KidKare online software program. If you are just purchasing KidKare, you can go back to the beginning of the year to enter your meals and snacks. Or you can track this using a calendar or any other written record.

Q: Do you have to list each child’s name, or can you just record “Monday, 8 extra snacks”?

A: Record each child’s name who got the extra snack.

Q: If I record when a child arrives and departs each day, is this enough to show a record of the number of meals and snacks they ate?

A: No. Simple attendance records are not enough. You need to show that you served meals and snacks.

Q: Do I need to keep records of how many meals and snacks my own children are served?

A: No, because you can’t deduct any of them.

Q: How do I keep track of meals and snacks I serve my employees?

A: Track them on a calendar or any other method you choose.

KidKare

Q: How do I enter food expenses into KidKare?

A: Enter on a daily basis all the meals and snacks you serve to each child. KidKare will allow you to enter up to six servings per day per child. Your Food Program sponsor may allow you to enter more than three servings a day into KidKare. If you use the standard meal allowance method, these meals and snacks will be totaled on a Standard Meal Allowance report that will tell you what your total food deduction is. If your sponsor won’t allow you to enter more than three servings, you’ll have to keep track of these extra servings on a calendar or separate piece of paper. Or, you can purchase the accounting features of KidKare separately and enter your extra meals and snacks there. In this case you would have two KidKare accounts. If you use the actual food cost method, you can enter the actual cost of the food into KidKare and it will be included with your other business expenses.

Q: Is KidKare only used for food deductions, or can I use it to enter all my other business expenses?

A: The accounting section of KidKare allows you to track all your business income and expenses. It will also calculate your Time-Space%, track mileage, create parent invoices, and print out a series of reports at the end of the year that will save you time and money on your taxes.

Q: If I am using KidKare to claim meals and snacks with my Food Program sponsor, do I have access to the accounting features in KidKare?

A: Only if you purchase the accounting features separately.

Q: Can my sponsor see any of the information I enter into KidKare regarding my income?

A: No. All information you enter into the accounting section of KidKare is private and cannot be seen by your sponsor.

Q: How long does Kidkare keep my records?

A: KidKare keeps your records for the last three years, plus the current year.

Q: Does the IRS have access to the information I enter into KidKare?

A: No!

Q: Does KidKare deduct the reimbursements received for your own children?

A: Yes, the KidKare “Standard Meal Allowance” report will show the number of meals and snacks reimbursed for your own children, but it won’t add them to the meals and snacks you can deduct. The report will show what you can deduct as a food expense, without counting meals and snacks served to your own children.

Q: Can I use KidKare if my Food Program sponsor doesn’t use KidKare?

A: Yes, you can always use KidKare even if you sponsor doesn’t use it to claim meals and snacks. KidKare can be used to track parent payments and all business expenses.

Q: Can I only use the accounting reports if I subscribe to KidKare? I claim meals through KidKare, but I don’t use it for accounting.

A: You can only use the accounting reports if you have KidKare. If you sponsor doesn’t give you access to the accounting section, you’ll need to purchase a subscription to KidKare.

Q: If my sponsor allows me to enter extra snacks into KidKare, where do I enter the extra snack?

A: Enter the extra snack like any other snack.

Q: Does KidKare print out a Form W-10 for parents at the end of the year?

A: Yes. In fact, KidKare prints out this form showing how much each parent paid.

Q: If I decide to purchase KidKare, will it allow me to enter meals/snacks from January until now?

A: If you purchased KidKare independently from a Food Program sponsor, you can enter meals and snacks for any date. If you use KidKare to claim meals and snacks through a Food Program sponsor, the answer depends on your Food Program sponsor's policies.

Q: Can you import Excel or QuickBooks into KidKare?

A: No.

Q: If I purchase KidKare in June, can I enter business expenses from January through May?

A: Yes, KidKare allows you to enter expenses from before you purchased it.

Q: How much does KidKare cost?

A: $9.95 per month or $99.00 per year. It’s 100% tax deductible. If you do purchase KidKare, enter the code 0659 to help support the work I do assisting providers.

Q: Can I use money I received from the Paycheck Protection Program (PPP) to pay for KidKare?

A: Not directly. But, you can use the PPP money to pay yourself and once you do that you can use the money to pay for KidKare.

Other

Q: I use Instacart for groceries. Can I deduct the fee for this service?

A: Yes.

Q: Can I deduct toys and books?

A: You can deduct all expenses that are “ordinary and necessary” for your business. This certainly includes toys and books used in your business.

Q: Will we be required to show a loss of income if we receive the new state grants (like the Second Draw PPP forgivable loan)?

A: No. New state grants will not have this requirement.

Q: Can I deduct my medical expenses?

A: No, with one exception. If you hire your spouse and set up a Health Reimbursement Account (HRA), you could deduct you and your family’s uninsursed medical expenses. See my article.

Q: How do I claim the hours I work when children are not in my home?

A: Either record them on a calendar, or use the KidKare software program. Here’s a video about how to record them using KidKare.

Q: How do we survive the huge hit on our taxes with grants I’ve received?

A: You are always better off financially if you get a grant. Grants are taxable income. You may end up owing more in taxes after receiving a grant, but you will have more money left over after paying any additional taxes. States will be issuing new grants to providers in the very near future. You may want to set aside some grant money towards these additional taxes.

Q: Will I qualify for the new grants that are coming without participating on the Food Program?

A: Yes. But you should participate on the Food Program!

Q: Can I use a bank statement as a record to claim mileage?

A: Yes.

Q: Do I need receipts for laundry detergent if I wash bedding and children’s clothes?

A: Yes, these are considered ordinary and necessary expenses for your business.

Q: If I move my family child care to another city in the same state, can I deduct the moving expenses?

A: No, unfortunately moving expenses are no longer deductible in your situation.

Tom Copeland – www.tomcopelandblog.com

Image credit: https://www.parents.com/recipes/scoop-on-food/why-its-okay-if-your-kid-eats-pasta-all-the-time/