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Daycare and Taxes>Help!!! I Think I'm In Big Trouble!!!
CheekyChick 09:21 AM 02-06-2011
HELP!!! I think I've gotten myself into a huge (tax) mess...

I own an in-home daycare and hired 5 part-time assistants in 2010. I had
NO idea how to withold taxes from their pay, so I had them sign a form that stated they would work as Independent Contractors. From reading on the Internet, it looks like I should have been withholding taxes from their pay or I
could be fined by the IRS. Yikes!!!

If I am wrong, and am able to treat them as Independent Contractors, I already missed the deadline (1/31/2011) to send my assistants their 1099 forms. One of the assistants (who quit) e-mailed me and said I missed the deadline, so she will consider the monies she earned from me in 2010 as "working under the table."

What should I do???

A) Should I forget the $10,000.00 I paid to assistants in 2010 and just claim it as my own income (which means I will have to pay a LOT of taxes on it)?

B) Should I send my assistants a 1099 (a week late) and run the risk of penalties and fines from the IRS for treating them as Independent Contractors when they should have been employees?

C) Should I move to Mexico? Just kidding...

I TRULY would appreciate any input or suggestions on this matter. I am terrified I created a huge problem for myself by not taking the time to figure out how to pay my assistants correctly.

Thank you for you time, input, suggestions, etc.,
PS: Can anyone direct me to a website/blog/post on how to withold taxes from part-time employees? Thanks.
Lilbutterflie 01:24 PM 02-06-2011
Wow, I have NO idea! Sorry you are in such a mess. Hopefully Tom Copeland will chime in, but I know that at this point you should be consulting a tax adviser that knows what they are doing in regards to a daycare business!!!
heyhun77 04:13 PM 02-06-2011
You need to read through publication 15 on the irs website ( That will get you all the information on withholdings and how to do it. You also need to locate information for your state income tax information. In addition you may be required in your state to fulfill other employer obligations.

I have found in my past dealings with the irs that they can be easy to work with when you call them rather than waiting for your lashes with a wet noodle.

I'd definately email or call Tom Copeland to get his advice on the 2010 employees and then make sure you do it right in 2011.
Michael 04:29 PM 02-06-2011
You can also join us for our Tax Webinar with Tom Copeland "How to Reduce Your Taxes for 2010 and 2011!". For more info:
Abigail 05:36 PM 02-06-2011
Michael, is there a way to join the webinar and have it recorded? I might have to work, but would like to see/watch anything new and will still pay the $25 fee associated with the webinar. Please let me know if this is possible. Thanks
Michael 05:47 PM 02-06-2011
Originally Posted by Abigail:
Michael, is there a way to join the webinar and have it recorded? I might have to work, but would like to see/watch anything new and will still pay the $25 fee associated with the webinar. Please let me know if this is possible. Thanks
I believe so. I will ask Tom. You will miss out asking questions in real time. Maybe you can have another member ask questions for you.
TomCopeland 11:50 AM 02-07-2011
It's true that you should have treated these people as your employees, not as independent contractors.

My advice is to file Form 941 and pay the social security taxes that you owe for 2010. This will mean a penalty for not paying all of these taxes in earlier. You should also file Form 940 and pay federal unemployment taxes (.8% or $800). You should also pay state unemployment taxes. To get help with this you may want to hire a tax preparer to get you uptodate. You don't want to send the employees a Form 1099 because that will increase your changes of being audited. You do want to pay these back taxes because you want to do the right thing and you want to deduct the $10,000 as a business expense.
CheekyChick 05:28 AM 02-08-2011
Thank you to Tom and everyone who responded. I am going to see a tax advisor today.

May I ask one last question? I've been told I need to offer Workers' Compensation to my assistants - even if they work 10 hours per week.
Can anyone refer me to someone who sells this insurance?

TomCopeland 04:02 PM 02-08-2011
Workers Compensation insurance rules are decided on the state level, so I don't know the answer for your particular state. In many states, providers would need to purchase this insurance even their workers only worked for them a few hours. To find an insurance agent, talk with your homeowners, car, or business liability insurance agent to see if they can sell you a policy. If not, contact your state workers compensation office.

Join me on February 28th for my webinar "How to Reduce Your Taxes for 2010 and 2011. For more info:
Tags:irs, tax return, taxes, workers comp
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