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Child Care Aware of Virginia

Family Child Care Home Business Support

2021 Tax Returns: Tax Tips for Family Child Care Home Providers

Don't Let Tax Time Get You Down!  We have resources to help! 

Links to Internal Revenue Service Forms & Material

Additional Resources You Can Use!

These one pagers are easy-to-understand explanations of IRS forms and business calculations to save you money!

  • Understanding the Time-Space Percentage Used to Claim Business Expenses on Your Tax Forms  (A one page explainer, English and Spanish)
  • IRS Form 8829: Understanding Expense Deductions for the Business Use of Your Home (A one page explainer, English and Spanish)
  • IRS Schedule C: Understanding Business Deductions Using Schedule C for Sole Proprietors (Profit or Loss Business IRS form, a one page explainer, English and Spanish)

Other Resources from Tom Copeland

Have your heard about our online family child care toolkit? Learning resources, business templates, discounts on frequently purchased products and more!

  • The Virginia Shared Services Network is a platform of resources, which includes an online family child care toolkit.
  • Slides (Screenshot overview of the online FCC toolkit in English and Spanish)

U.S. Small Business Administration (SBA) Business Relief Options for Family Child Care Homes 

In response to the COVID-19 public health pandemic, Congress passed several bills in 2020 and 2021 to provide business relief, particularly for small business owners such as family child care providers.  

COVID-19 Economic Injury Disaster Loans.  The U.S. Small Business Administration offers low interest loans to small businesses, including family child care providers. Unlike the PPP program, the Economic Injury Disaster Loans (referred to as EIDL) are not forgivable. The interest rate for family child care homes is 3.7%. Payments are deferred for one year (although interest accrues). The loan is for 30 years, but can be paid back sooner if the borrower chooses to do so.

Targeted EIDL Advance funds of up to $10,000 (which are grants, not loans) will be available to applicants located in low-income communities who previously received an EIDL Advance for less than $10,000, or those who applied but received no funds due to lack of available program funding.  Applicants may qualify if they:

  • Are located in a low-income community. The definition of a “low-income community” is defined here or you can use the SBA mapping tool to check to see if your zip code is located in a low income community.
  • Have more than a 30% reduction in revenue during an 8-week period beginning on March 2, 2020, or later. Providers will be asked to provide gross monthly revenue (all forms of combined monthly earnings received) to confirm the 30% reduction.

Applicants do not need to take any action at this time. The SBA will reach out to those who qualify.

U.S. Internal Revenue Service (IRS) Business Relief Options for Family Child Care Homes 

Overview Resources:

Virginia COVID-19 Child Care Information

  • Virginia Dept. of Education -- Get the latest information about COVID-19, grants, and other important updates for child care providers. 

Let the IRS help you determine if your business is likely to qualify for one or more of the tax relief options currently available.

Some allow for an immediate dollar-for-dollar tax offset against payroll taxes to help pay for employee sick leave and some are designed to help keep employees on your payroll (such as the Employee Retention Tax Credit). 

  • Family child care providers can get a tax credit against self-employment taxes for purposes of qualifying for paid leave. Read more here in the IRS FAQs. Self-employed individuals (such as family child care home providers) file for the paid sick and family leave credit using IRS form 7202.
  • Family child care providers cannot utilize the employee retention tax credit unless they have employees.

All you need to do is answer a few questions. It should take less than 5 minutes.

Access the IRS COVID-19 Business Tax Relief Tool Now!

IRS COVID-19 Business Tax Relief Tool

Ask your tax preparer if these credits are right for your business!

Tools You Can Use to Support

Your Family Child Care Home!

Employee Retention Tax Credit.  For family child care providers that have an employee, you may also qualify for an employee retention tax credit.  Read this one pager on the Employee Retention Tax Credit and talk to your tax preparer to see if you can claim this tax credit.

October 2021 Update

The SBA Paycheck Protection Program (PPP) expired on May 31, 2021. However, loan applications were processed through June. At this point, providers that received a PPP loan need to apply for forgiveness (which is what turns the “forgivable loan” into a grant). Providers can apply for forgiveness as soon as all the loan funds are spent. Borrowers need to apply for forgiveness within 10 months of spending the money (in order to qualify for forgiveness).

The SBA Paycheck Protection Program (PPP) Online Forgiveness Portal

In August 2021, the SBA opened a new online PPP loan forgiveness portal for loans of $150,000 or less. This means that businesses that received a PPP loan can apply online through the SBA instead of going through their lender that approved the loan.

The SBA created the new online forgiveness portal to help expedite forgiveness approval, which turns the loan into a grant (i.e., borrowers will not have to repay it). The new online portal is designed to speed up the approval of forgiveness for small loans ($150,000 or less).

How the SBA Online Forgiveness Portal Works

The online portal requires borrowers to submit the same information that they otherwise would have filled out on a bank form. It can be faster for borrowers to receive forgiveness because they won’t have to depend on their bank queue of review for approval, which could include both large and small loans. Because the online portal is designed only for small loans, the process could be faster.

In order to use the SBA online portal, your bank must opt-in (which is a bank process partnering with the SBA). More than 1,400 banks have opted in as of September 23. Check here to see if your bank has opted in. Because the portal is new, it is expected that many more banks will be opting in over the next few weeks.

Be prepared! Review the form below of required information (the same information is required through the online portal as would be required through a bank form).

SBA Form 3508S. This form is for borrowers of $150,000 or less. It’s a short one page form. No calculations are required. Borrowers do not need to submit documentation. However, the SBA requires retaining all records for Form 3508S for four years (in case borrowers are subject to a random audit).

SBA Online Forgiveness Portal Tips! When you first visit the online portal, you will be required to set up an account (with your email) and create a password. Write down the password to save it! You will receive an email to verify that you want to create an account. It’s quick, just click on the link and confirm. Once your account is set up (which is really fast), you will need to have this information ready to submit through the portal:

  • EIN, SSN, or ITIN
  • SBA Loan #
  • Gross Receipts 2019
  • Gross Receipts 2020
  • # of employees at time of application (remember: family child care providers need to claim themselves as an employee, so your answer would be “1” unless you have an employee, and then your answer is “2”, which includes yourself)
  • # at time of forgiveness (same as above)
  • Amount of PPP spent on payroll

SBA Portal User Guide! The portal is really simple. However, reading through the user guide can make the portal submission process much faster and may help answer any questions you have. If you do have questions, the SBA has set up a hotline where a team of SBA staff are ready to answer any question! If you have two PPP loans (a first draw loan and a second draw loan, you must apply for forgiveness for each loan separately).

SBA Hotline: 877-552-2692

Brief Background About PPP loans. Congress created the PPP “forgivable loan” (in other words, a grant) for small businesses in March of 2020. Congress has extended PPP several times. In December 2020, Congress separated PPP into two programs.

  • First Draw PPP forgivable loans are for businesses that did not receive a PPP forgivable loan in 2020.
  • Second Draw PPP forgivable loans are for businesses that received a PPP forgivable loan, but still have additional need for financial support. The Second Draw PPP loans are restricted to businesses with 300 or fewer employees and must be able to show at least a 25% reduction in revenue between comparable quarters in 2019 and 2020.

As long as borrowers use the funds for eligible expenses, borrowers can apply for “forgiveness”, which is what turns the loan into a grant that does not need to be repaid. Borrowers need to apply for forgiveness within 10 months of spending the money.

Overview of Eligible Expenses for Forgiveness

In general, in order for forgiveness to be approved, at least 60% of the funds must be used for payroll related costs. This means up to 40% of the loan can be used for fixed costs such as mortgage interest, rent, utilities, software used for your business (e.g., for record-keeping or supporting other business operations), perishable goods (such as food costs), expenses for PPE, cleaning supplies, and other expenses related to social distancing and public health requirements related to COVID. For family child care providers, you are eligible for a PPP forgivable loan whether or not you have employees. (For example, for purposes of the PPP loan, an FCC provider is considered an employee).

Allowable Expenses for Non-payroll Uses of PPP Funds. Four additional categories of eligible expenses for fixed costs were added through legislation enacted in December.

  • Covered Operations Expenditures. Costs related to business software or cloud computing services that support business operations, billing, accounting, or record-keeping. For example, for child care programs, this means the cost of child care management system software that supports business operations or other business support.
  • Covered Property Damage. Property damage due to public disturbances that occurred during 2020 that are not covered by insurance.
  • Covered Supplier Costs. Expenses pursuant to a contract, order, or purchase order with respect to perishable goods and other items. For example, for child care programs, this means the purchase of food served to children.
  • Covered Worker Protection Equipment. Expenses that support business activities to comply with COVID requirements established by the U.S. Department of Health and Human Services, Centers for Disease Control, Occupational Safety and Health Administration, or any equivalent requirements or guidance by a state or local government during the pandemic. For example, for child care programs, this means expenses for PPE, cleaning supplies, sneeze guards, portable water stations, and other expenses related to social distancing and public health requirements related to COVID.

Note: Although expenses related to fixed costs were expanded in legislation enacted by Congress in December, the requirement for at least 60% of PPP loans to be used for payroll related purposes remains in place. Payroll expenses include cash compensation, employer contributions for group health, life, disability, vision or dental insurance and employer contributions to employee retirement plans (exception: benefits for the self-employed (e.g., family child care providers) are not included because the SBA considers such payments already included in compensation).

Each of the SBA Forms that correspond to PPP loans is accompanied by detailed instructions: 4 pages of instructions to explain SBA Form 3508S, 5 pages of instructions to explain SBA Form 3508EZ, and 8 pages of instructions to explain SBA Form 3508.

For help in completing SBA forms, ask your lender or reach out to your local Small Business Development Center (SBDC) or, call the SBA Hotline: 877-552-2692 for help with the portal.