Hiring Workers

A. Child-care providers who hire people to help them care for children should generally Atreat these assistants as employees. Providers are required to treat the assistants as employees even if the individual works only a few hours a month. The IRS issued a publication in 2002 (MSSP for Child Care Providers), which clearly states that providers who hire someone to work in their home with the children should treat the worker as an employee, not an independent contractor. However, following are few instances where the individual providing the service is not treated as an employee, but rather as an independent contractor:

  • If the assistant is hired through an agency and the provider pays the agency for the service.
  • If the assistant is offering a “special service” e.g. a gymnastics class.
  • If you use the services of someone who does qualify as an independent contractor have them fill out a Form W-9 and return it to you before you make a payment to them (Appendix 5).

If you make payments totaling $600 or more in the year, you will be required to prepare Form 1099 to report the payments. Note that the 1099 form must be provided to the recipient (and filed with the IRS) by January 31st of the subsequent year.

B. If you do hire an individual to directly assist in your child care business, the following forms need to be filed:

  • Verification of eligibility to work in the U.S. (Form I-9)
  • Employer Identification Number (Form SS-4,  Appendix 8)
  • Combined Oregon Employers Registration Form
  • Workers Compensation Insurance Application
  • Federal income tax withholding (Form W-4)
  • New Hire Reporting Form
  • Employers Quarterly Federal Tax Return (Form 941) or Annual Return (Form 944)
  • Oregon Quarterly Payroll Reports (Form OQ)
  • Federal Unemployment Report (Form 940)
  • End of the year reporting of wages and withholding (Forms W2 and W3)

C. the IRS has simplified the reporting for those employers who expect that they will owe employment taxes of less than $1,000 (usually if wages to be paid in the year will be less thatn about $4,000). They will qualify to file Form 944 which is an annual form prepared after the end of the year.

D. If a provider hires a family member to work for them in their child-care business, the family member should be treated as an employee. If you hire your spouse or your own child over the age of 18, the wages paid to the individual are subject to most of the same payroll taxes as wages paid to an unrelated individual, except unemployment taxes.

E. If the provider hires their own child who is under the age of 18, the wages are not subject to unemployment taxes or to social security and Medicare tax.

F. If you do hire your own child, make sure:

  • The work the child does is related to the child-care business.
  • The pay is reasonable (the same as you would pay another child the same age to do the same work).
  • The pay for child-care work is distinguished from a personal allowance.
  • Records are maintained to support the hours worked by the child.

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