12 Family Child Care Record-Keeping Guide of the year. The IRS will initially assume that a child is enrolled in your program for 52 weeks a year at your full-time rate. They will look at your contract to identify your rates. If your rate is $150 a week, the IRS will assume you earned $7,800 a year to care for each child. Your records will need to show if this is not the case. Keep records that show when you do not receive your full-time rate for a child for part • or all of the year (because of a family layoff or other special circumstance). Let’s say, for example, that you care for a child for 52 weeks and the child is on the Food Program. Because of a layoff in the child’s family, you decide to charge the family half your regu- lar rate for three months. If you are audited, the IRS will look at your Food Program and attendance records and see that the child was present for the entire year. They will assume that you were paid your full rate for the year unless you can show with your pay- ment records that the parent paid a reduced rate for those three months. Keep records that show when you choose • not to charge a fee (for a late pickup, over- night care, early drop-off, or transporting a child, for example). In other words, if your attendance records show that the child was picked up at 7 pm and your contract says the pickup time is 6:30 pm with a $1 per minute late fee, the IRS will assume that you earned an extra $30 each day that this happened. If you are not charging parents for these late pickups, put a note in your attendance records (for example, “No late fee charged”). Check your sign-in and sign-out sheets for accuracy. The IRS • Child Care Provider Audit Technique Guide gives an example of a how an auditor might try to verify income using sign-in and sign-out sheets and rate schedules. The example involves a provider who reported $38,400 in income based on her bank deposit records. When the auditor looked at her attendance records and multiplied the days the children were in care with the stated contract rate of $250 a week, the income totaled $61,250. This provider is in trouble because it looks like she underreported her income. How would a provider respond to this situation? The provider might make the case that parents didn’t actually pay the stated rate consistently throughout the year for a variety of reasons. To support her position, the provider would need to ask parents to write letters indicating how much they did pay that was less than $250 a week for part or all of the year. Obtain Parent Receipts The amount that you report on your tax forms as parent income should be the total of the amounts that your client parents report as child care payments to you on Form 2441 Child and Dependent Care Expenses. Parents can claim several thousand dollars in child care expenses on their tax returns—and in claiming those deductions they must also report the total that they paid for child care to each provider. However, the parents may not file the correct total for their payments to you. They may not be able to track down one of their other child care providers, and so may just decide to put all their payments under your number; they may put down more than they paid by FCCRKG8-FourthPages.indd 12 3/10/10 9:21:01 AM