What are the Consequences of Not Being Licensed?

As a family child care provider you fall into one of three categories:

* You meet your state child care regulations

* You are exempt from your state child care regulations

* You are in violation of your state child care regulations

If you are an exempt provider this means you are operating legally under your state's laws. This would be the case if your state had a certification or registration system that was voluntary and you didn't sign up. Or if your state only licenses providers who care for more than four children and you care for three.

If you are exempt the tax consequences are the same as if you were licensed. You can fill out the same tax forms in the same way. You are entitled to the exact same deductions as a licensed provider. The drawbacks: in most states you won't be eligible to participate on the Food Program, and it will be harder to find business liability insurance.

Some insurance companies will only offer coverage if you meet your state regulations. In addition, you may not be eligible for grant or loan programs offered through your Child Care Resource and Referral (CCR&R) agency.

Lastly, you won't be able to meet higher quality standards and receive financial rewards through your state's Quality Rating and Information System (QRIS), nor will you be eligible for accreditation or other credential programs that signify a quality child care program.

What if you are in violation of your state's child care regulations? In this case you will lose the ability to deduct house expenses (mortgage, rent, property tax, utilities, house insurance, house repairs, and house depreciation). But you can claim all other deductions (food, toys, supplies, car expenses, etc.).

You won't be able to get business liability insurance or be on the Food Program. You won't have access to services from your CCR&R (training, grants, loans, referral listing, and more).

I believe every provider should meet their state's child care regulations. Research indicates that providers who do so offer higher quality care than those who don't. If you are licensed I believe every provider should strive to achieve a higher level of quality by participating in their QRIS program or NAFCC Accreditation or a CDA credential.

Tom Copeland - www.tomcopelandblog.com

Photo credit: https://www.flickr.com/photos/andreweick/352677894

For more information about starting your business, see my book Family Child Care Business Planning Guide.