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01-04-2011 08:58 AM
TomCopeland This is an issue that continues to cause confusion. The IRS writing on this topic has contributed to this confusion. Let's clarify:

Let's say you received $4,000 in Food Program reimbursements (none for your own child). Let's say you spent $5,000 on food.

The IRS has described two different ways to report this on your tax return.

Method #1: Report zero income and $1,000 in food expenses. As you can see, we are only reporting food expenses that exceed the reimbursement. This is called the "netting" method. Net the income and the expenses and report the difference.

Method #2: Report $4,000 as income and $5,000 as a food expense. As you can see, using this method comes out the same as method #1. That is, the provider will pay taxes on $1,000.

Now, if this provider reported zero income and $5,000 as an expense, this would be wrong.

Here's what the IRS Child Care Provider Audit Guide says on this issue:

"If the provider receives reimbursement for food costs through the CACFP or any other program, the provider can report all the reimbursements under the income section of Part I of the Schedule C and then deduct the food expenses in full, which is the recommended method especially when the provider receives a Form 1099 from the program, or the provider can net the amount reimbursed against the food expense. If the provider uses the netting method and the food expense is greater than the reimbursement, then the provider may deduct the excess as a food expense. If the reimbursements exceed the total food expenses, then the provider should report the excess income in Part I on the Schedule C. The netting method is not a preferred method since an Examiner will always be looking for the food reimbursement amounts. When you report the amount separately, the Examiner will more easily be able to account for the payments."

So, the IRS officially recommends that providers use Method #2 - show all the income and all the food expense. I've handled many, many IRS audits of family child care providers and the IRS auditor always wants to see all the income and all the food expenses.

Lisa4kids - What your sponsor is telling you is false. If you forward this email to me I will follow up with them. I think they are confused.
01-04-2011 07:52 AM
jen I have always been told that it IS income. You can deduct the cost of meals to offset, but it should be claimed on your tax forms. You will recieve a 1099 at the end of the year from the food program for tax purposes.
01-04-2011 07:38 AM
DCMomOf3 I would be just as confused as you are, i'm sorry!

welcome to the board, i hope you get a good answer.
01-04-2011 06:36 AM
Lisa4kids I'm a Michigan provider and was told by my field monitor that the reimbursement I received is NOT considered income. I was reading posts in this forum yesterday which Tom said that "yes" it is considered income. I contacted the food program this morning to clarify and they said "No" it it not considered household income. Now I'm very confused and will my tax preparer know what to do with this information?? I asked for verification paperwork and all I received was a forwarded email sent from the Field Operation Manager to the Field Monitors stating that "I spoke to Rosemary today and asked her about CACFP reimbursement being considered income. It is NOT income. CACFP is reimbursement for the cost of serving food. All caseworkers have a list of what is considered income and CACFP reimbursement is not on that list. The payments they receive from DHS for child care is considered income". Does anyone have any insite on this subject? Thanks for your help.

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