Conference moira::parenting_v3

    
     3400???    Please tell me that was part time!  That's less than half
    what I was paying for one child eight years ago!
    
    As to deductions, they are all spelled out in the instruction/form
    booklet that you probably received about 2 weeks ago.
    
    		- Bruce
    

    No, Bruce, it is full-time but then this is Albuquerque, too.
    Maybe we should be grateful, but we could have sent our son to the
    University of New Mexico for the year for less than what a year
    at daycare cost.  Plus the fact that it was about 10% of our family
    income.  Guess it is just hard since this is our first full year
    of daycare expenses and money has been tight.....
    
    Pam

    I pay 4680.00 a year for full-time daycare and live in Southern NH.
    Six years ago I was paying 3380.00 year. She starts first grade next
    year and I can't wait so we don't have to pay out that much anymore.
    
    As for taxes you can only claim upto 2400.00 and then you only get
    a percentage of that.
    
    I guess every little bit back helps.
    
    ps
    

    I paid $3,900 full time daycare in Merrimack NH and was told that I
    could claim up to $2,400.
    
    

    Can someome please explain to this new mother how the withheld money is
    paid out?  I need to know by tomorrow to discuss with my accountant.
    
    By the way, licensed family day care in southern NH for an infant runs
    $100-$150 per week!  It drops to $85-$125 for children 1 year old. 
    Unlicensed here runs about $85 for infants.  You New Mexico folks are
    lucky.  NH commuters to Mass. (we are legion) pay 6% income tax in Mass
    AND very high property taxes.  Add in day care, and there isn't much
    left at week's end.  With New England's economic woes, its grey days
    for our pocketbooks.
    
    Enough griping.  Thanks for any info on the daycare deduction payout.
    
    Laura

    Just a point...New Mexico folks are NOT lucky--it is all relative.
    Yes, daycare is cheaper as is housing as is food, etc. but so are
    the WAGES!!!  I think this is true just about anywhere--we all end
    up short at the end of the week, no matter where we live!!! :^(
    
    Pam

There are two different methods for reducing your taxes due to child
care expenses.

The first, and oldest, is the "Child Care Tax Credit".  This is filed using
IRS form 2441.  The way it works is that you can get a credit for a percentage
of your expenses up to $2400 per child.  The percentage varies by income,
the more income, the less the percentage, down to a minimum of 20%.  I don't
know what the maximum is.  So if your expenses are more than $2400 and your
income is over a certain amount, you get a credit of 20% of $2400 which is
$480.  This is not a deduction, it is a credit applied against your taxes
paid, and it is possible for the government to actually send you money if your
taxes owed are less than the credit.   In no case do you get a credit of
the full $2400, though.

The newer method is the Dependent Care Recovery Account or DCRA.  You have
to sign up for this at the end of the year and specify an amount which is to
be deducted from your paycheck each week.  Then you submit receipts for
qualified expenses to the administrator (John Hancock) and they send you
a check.  The benefit is that the amount taken out of your check is not
subject to federal income or social security taxes.

Another point is that if you try to claim both kinds of benefit, the
amount of expenses you can claim on the form 2441 is reduced by the amount
you had deducted for the DCRA.  You have to look at your expenses to see
which method makes sense for you.  For most people in the higher income
brackets, the DCRA is more beneficial.

				Steve

    Looking at the form, I see a couple of things of import.  First,
    for the tax credit, the maximum expenses you can claim are $2400 for
    one child, $4800 for two or more, so it's not really $2400 per
    child.  Second, the percentage is 30% for incomes under $10,000,
    sliding to 20% for incomes over $28,000.  Also, the expenses
    claimed are limited by the smaller of your income or your spouse's
    income, if married and filing jointly.
    
    If you get the full form 1040 package, it contains form 2441 and
    instructions.
    			Steve

    Steve,
    
    Excuse me for asking again. I can't quite remember what happened last
    year with the DCRA. When my W4 comes will my gross income reflect my
    wages before my DC deduction? And since I am enrolled in the DCRA, am
    I required to fill out a 2441 with my return?
    
    In other words, can you give me a synopsis of filing a tax return using
    just the DCRA.
    
    Thanks, Jan

    You're W4 will show your gross income LESS the amount deducted for
    daycare, e.g., if you make $30K and spent $4K on daycare, it will show
    $27K.
    
    T.
    

Actually, it will show both.  The "Box 10" figure will be your taxable wages,
and there is a separate box for the Dependent Care amount.  Yes, you must
fill in form 2441, at least part of it.  Last year, there was an instruction
to write in a notation somewhere on form 1040 of the amount of "DCF", though
it wasn't taxable.  I haven't looked at the forms closely enough to see
how it works this year.  I'll study the instructions and get back here
with more details.

				Steve

    Ok, here's the scoop.  If you contributed to DCRA and are not taking
    the Child Care Tax Credit, you must still fill out and attach form
    2441 to your return.
    
    In part I, you list the persons or organizations who provided care
    and the amounts paid.  You skip part II.  In part III, you enter
    on line 17 the amount you contributed and subtract any forfeited
    amount.  From this you subtract the smallest of (total expenses
    paid, your income, spouse's income, $5000).  The difference (if
    greater than zero) is a taxable benefit and must be included
    in the total on line 7 of form 1040, and you write in "DCB" next
    to line 7.
    
    See the form 2441 instructions for more details.
    
    One thing this points out is that there is a limit of $5000 of
    tax-exempt contributions.
    
    				Steve

    
    		What options do I have.....
    
    		Last week I requested from my babysitter (private home)
    		a rec for tax's.  She got rather upset and said if I
    		file it on my tax's then she has to file it on hers.  She
    		said last year she didn't have to but this year she does.
    
    		Her husband is a manager and has been with his company for
    		15+ years.  She insist that if she has to claim her baby-
    		sitting income that it will put them in a higher bracket
    		and she will have to pay $400 some odd $'s.
    
    		We had no problem last year, just now all the sudden.  We
    		discussed not putting her name on the tax's.  She said if
    		I do file and put her name on that she will have to raise
    		my babysitting fee 50%.  
    
    		I personally don't want to loose her as a babysitter, as
    		she has an ideal home, surroundings, everything, but...
    
    			what is she trying to do here ?????
    
    		and what can I do ?  Is there anyway I can claim my
    		babysitting without putting a name on the tax form ?
    
    		Any info would be greatly appreciated, if more info
    		is needed I will fill in any gaps.
    
    		Thanks in advance
    
    		deb g
    

    
    I'm pretty sure that you need to supply the IRS with her SS# in order
    to take a deduction.  There is an extensive discussion on this in 
    Parenting V.2 as I recall.  Basically, the discussion was divided into
    2 camps--those who felt babysitters or providers make little enought
    without having to pay taxes on the $ they do make--and those who
    thought these people are breaking the law and should due the right
    thing and pay taxes on the $ they make.  Of these 2 camps, people were
    divided as to whether they would pull their kids out of a daycare where
    the provider was trying to cheat the gov't.  It was a pretty intense
    discussion, as I recall.  You might want to check it out...
    
    Bonnie
    
    
    
    

If you want to claim the tax credit, or use DCRA, the provider MUST give
you their SSN or tax ID number.  If you don't have it, you can't claim.

			Steve

    Last year there was a form you could fill out and attach saying
    that you had tried to get the SSN from the caregiver and couldn't. 
    I don't remember exactly what the rules were and they might well
    have closed that loophole this year. 
    
    --bonnie

    Thanks for the info Steve, I knew I was in trouble when I mentioned
    the "W4" instead of "W2". 
    
    As far as the babysitter not wanting you to give her SS#. When I first
    brought this up with my sitter, she did not want to do this either.
    Together we agree on a fee which was higher (by $15 so it's not the
    50% you are talking about) than her other charges. The next year my
    sitter obtained her daycare license so I just assumed that she is
    charging any new clients her new increased rate. Also she is writing
    off home depreciation, etc. on her taxes. 
    
    The point I trying to make (the mind is mush) is that initially I was
    the only parent requesting receipts and the only one being charged the
    higher rate, but that rate was agreed upon as as offset to the
    additional taxes she would need to pay to claim her fee as income.
    
    Jan

    The business about the "higher bracket" is baloney.
    
    As your income increases (e.g. form $X to $X+d), your taxes
    increase (from $Y to $Y+e), but at _no_point_ is the increase
    in taxes ($e) more than the increase in income ($d).
    
    When she doesn't report: 
    
    IRS sees their income as:	$A
    So tax is:			$a
    Plus unreported income:	$B
    			       ----
    Leaving:			$(A-a) + B
    
    If she did report:
    
    IRS sees income as:		$A+B
    So tax is:			$a+b		(b will be smaller than B)
    			       ------
    Leaving:			$(A-a) + (B-b)
    
    So she's quibbling about "b", which will be between a quarter and
    a third of the money she makes doing day-care.
    
    		-John Bishop

Re: .18

John, your logic is unassailable, but it won't make a shred of difference
to someone who doesn't see why Uncle Sam should get ANY of the money they're
bringing in.  It's not THEIR problem that the parent wants to get a deduction!

I think Jan's solution is the best.

Re: .16

I don't recall such a form, but I am sure that the IRS would pay close
attention to your giving the name and address of the provider who didn't
have the SSN - they'd then go look to see if the provider was reporting the
taxes.  The SSN just makes their job easier.

			Steve

    The argument in .18 is baloney.
    
    Being in a "higher bracket" does not require that your marginal tax rate
 exceed 100%, only that it increase.  Under the older tax laws, with many
 brackets, it was quite common to have a modest increase in income push one
 into a higher bracket.  It is still perfectly possible with the new, nearly
 flat, tax rates.  In effect, it is almost a certainty, since any increase in
 income will raise your average tax rate, even if you don't switch brackets.  
 
    In any case, marginal income is almost always taxed at a rate higher than
 average income.  She probably really meant that because of her husband's
 income, she had to pay a lot of taxes.  And that is entirely plausible.  With
 federal, possibly state, and social security taxes (the last at twice the
 usual rate, since she is self-employed), she is very likely to have to pay
 more than 50% of her additional income out in taxes, if declared.  Thus a
 "surcharge" of 50% is not unreasonable at all.  Such a rate does not even
 require high income on the part of a spouse.
 
    The issue is a legal/moral one.  Our social system encourages everyone to
 have opinions on what constitutes a fair tax system.  However, such opinions
 are supposed to be expressed through our legislative system.  Individuals are
 discouraged from acting directly on their opinions by disregarding the tax
 laws, for the benefit of themselves or anyone else.  While a parent paying
 for care of a child in the provider's home does not have to report the
 payments (unless they want to claim the credit) or withhold taxes, accepting
 a major discount in exchange for complicity in tax evasion is pretty dicey. 
 In earlier discussions of this same issue, some noters have also wondered
 whether providers willing to take shortcuts with the tax code might not also
 be willing to take shortcuts with child care.
 
 		- Bruce

re .-1:

Actually, if her marginal rate is 28% federal and 5% state and self-employment
tax is 15.3%, more than half of her income goes to taxes.  Her "surcharge"
should be more than 100%, which would probably price her out of the market.

 
 In re: .21
 
 Indeed, in saying that a 50% surcharge was "not unreasonable" I meant that it
 would not even cover her taxes.
 
 Your argument about being priced out of the market is quite upside down. 
 Most childcare is supplied by people who are paying taxes (either
 self-employed or through a center).  Any provider who asks you to conspire to
 help him/her evade taxes "ought" to offer you a discount of 50%!
 
 		- Bruce
 

re .20 re .18...

While it is true that the daycare provider might, if she declared her income,
have to pay an exorbitant portion of it (50%+) in taxes, I think that most
people, when they say "it would push me into a higher bracket", mean that
they would end up paying at a higher rate *on the income that they were 
already being taxed on*.  Since the "higher rate" applies only to the
marginal income, this (generally) just doesn't happen under the US tax
system.  I know of no circumstances (although I'm sure that there are
some bizarre ones) where the consequence of declaring $X of income could
actually be an increase of more than $X in tax liability.

---------------------------------------

Putting on my moderator hat for a moment:

Disagreement with other's opinions is a perfectly legitimate form of expression
in this conference.  Characterizing other's opinions as "baloney" or making
similar comments does not make a useful contribution to a discussion, and
we *strongly* discourage it here.

	-Neil

    In re: .23
    
    This makes no sense to me.  Why would most people use the phrase in
    question to refer to something that could never happen?
    
    I think "a higher bracket" is both simple and clear.  The general
    method for calculating taxes, as expressed in the basic tax tables, is:
    
    	If you make at least $M, but not more than $N, then you
    	owe $W taxes plus P% of the income above $M.
    
    That's one bracket; the next one starts at $N + $.01, etc.  The
    characteristic is that not only does $W increase with each bracket, but
    P% increases, too.  The old tax code had about umpteen different
    brackets, the new one has 3 (right?).  There is certainly no
    implication in the phrase "higher bracket" that the marginal rate (P%)
    be greater than 100%.
    
    		- Bruce
    
    p.s. I apologize for the word "baloney", which I included precisely
    because I found its use in .18 to be offensive.  That was tacky.

    From personal experience, I have found that  many  people  do  not
    understand  the  difference between marginal rates and total rates
    in the U.S.  income tax system.

    These people believe that if you are in the  25  percent  bracket,
    then  you  pay 25 percent of your income, and if you are in the 33
    percent bracket, then you pay 33 percent  of  your  income.   They
    therefore  believe  that if your income goes over the the limit of
    the 25 percent bracket, even if only by one dollar, that you  then
    must pay much more tax.  Expressed in marginal terms, the marginal
    tax rate on that one dollar is well over 100 percent.

    Now, you and I know this is not  the  case,  but  many  people  do
    believe  this  to be true (and often will not change their opinion
    when told differently!).  Given that many such people exist, those
    who  wish to manipulate others into conniving at tax avoidance may
    well choose to pretend to believe this way.  If the  person  being
    manipulated  is ignorant in the fashion outlined above, then he or
    she will be easier to persuade that the supposed super-high tax on
    the  marginal  income should be avoided, while if the person being
    manipulated  is  not  ignorant,  he  or  she  will  have  previous
    experience  with people having this misunderstanding, and may well
    not wish to take the time to educate  before  bargaining,  or  may
    expect  not  to  be  believed  if  he  or she tries to educate the
    manipulator.

    When I read the initial note, in which the babysitter was reported
    as expressing a desire to avoid a change in brackets, it seemed to
    me clear that the babysitter was either ignorant or attempting  to
    manipulate the noter in the manner outlined above.  In either case
    (ignorance or deception), "baloney" is appropriate,  if  informal.
    I  suspect  the  latter  alternative  is the case, i.e.  this is a
    deliberate attempt to con  the  noter,  as  we  already  know  the
    babysitter  is  trying  to  convince  the  noter  to assist her in
    avoiding taxes legally due.
    
    I'm sorry  Mr.  Collier  thought my remark tacky,  and I hope this
    explains my note.

                    -John Bishop

 There are, indeed, many confused people in the world, John, but it still
 puzzles me that you think this provider was among them.  The original note
 (.13) stated that the provider believed that her tax increase if she reported
 the additional income (presumably for only a single child) would be between
 $400 and $500.  We don't know what the income in question was, but surely it
 was a lot more than that.  My guess is that she in fact had significantly
 underestimated the tax (perhaps forgetting Social Security).  At least it is
 implausible that she was suggesting a massive tax increase, or an over 100%
 marginal rate.  It would have made no sense to propose a 50% surcharge if she
 had been.  It also seems clear that the noter herself was unconfused. I thus
 see no justification in labelling the provider as being guilty of either
 "ignorance or deception."
 
 		- Bruce
 
 p.s.   It wasn't your use of "baloney" that I called "tacky", John, but
 	my copying it.

    This past week I went to have my taxes done at the account.  I
    ran across the problem of not having a past daycare providers social
    security number for the child care deduction.  Unfortunately when
    I terminated the daycare provider, we left on bad terms.  
    
    I called the Office of Children for this woman's S.S. number, but
    providers are not required to give their S.S. numbers when applying
    for a license.   She recommended I send a letter to the provider
    requesting the S.S. number for tax purposes, with a returned receipt
    request attached.   The Office of Children said, if the provider refuses to
    provide the number the IRS will accept a copy of the letter and
    the the return receipt.  
    
    I thought I would pass this along so others could avoid the hassle of
    worrying how to get around this problem.
    
    Chris