How to Use This Book 7
Another easy way to get your EIN is by going online. The application process
is quicker, with fewer questions, and a simpler format to follow. Go to www.irs.gov
and enter “EIN” in the search box. Once you fill out the application online, you will
instantly get your EIN. You’ll be asked, Why is the sole proprietor requesting an EIN?
This question includes the following choices for answers: started a new business, hired
employee(s), banking purposes, changed type of organization, or purchased active busi
ness. Always answer, “Started a new business,” to this question, unless you are hiring
employees. This may seem like a strange answer if you’ve been in business for a long
time, but the instructions say to choose an answer that is closest to your situation.
If you have an EIN, you should use it instead of your Social Security number on
forms Schedule C and Schedule SE. On all other forms, including Form 1040 and
Form 1040-ES, you should use your Social Security number.
About Parent Payments and Form W-10
If the parents of children in your care want to claim the child care tax credit, they will
ask you to fill out Form W-10. Form W-10 is easy to complete: simply enter your name,
address, and Social Security or employer identification number, and sign the form. If you
have an employer identification number, you must use it, rather than your Social Security
number, on this form.
If you don’t fill out Form W-10 when a parent asks you to do so, you face a penalty
of $50, even if you don’t file tax returns or meet state regulations. Since the parents are
responsible for giving you this form, you don’t have to track them down and give it to
them if they don’t ask for it. Don’t, however, refuse to sign Form W-10 in the hope of
hiding some of your income from the IRS. Not signing this form is one of the things that
can trigger an IRS audit of your tax return.
Parents don’t file Form W-10 with their tax return. Instead, they keep it for their
records. When they file Form 2441, they take the information from Form W-10 and
record each provider’s name, address, and employer identification number, and the
amount paid to each provider. The IRS uses this information to check whether or not
the providers listed filed tax returns and reported all their income.
In the past, some parents overstated the number of their dependent children, and
some providers understated the amount of their income. The IRS is trying to reduce such
false reporting by requiring parents to list the Social Security or employer identification
number of each provider. Still, some parents may report child care expenses on their
Form 2441 that are higher than what they paid you. This can happen, for example, when
parents use two providers but report all of their child care expenses under one provider
because they don’t have the other provider’s Social Security or employer identification
number. To protect yourself, you need to keep careful records of how much each parent paid
you during the year. You should also get a signed receipt from each parent that indicates
how much they paid you that year and keep the receipt with your tax records.