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Do you pay someone to take care of a child or dependent so you can work, look for a job, or go to school? Good news: you might be eligible for a tax credit that can boost your refund. Read on to find out how Form W-10 can help.
What is IRS Form W-10?
Form W-10 is an IRS form that helps you get the information you need on your tax return to claim the Child or Dependent Care Tax Credit. This credit, which applies to your federal tax return, can lead to a bigger refund or reduce what you owe in taxes.
You use Form W-10 to collect and verify information for your tax return about nannies, daycare facilities, preschools, home aides, adult care providers, camps, and other individuals or organizations who provide you with paid childcare or dependent care.
Form W-10 captures your caregiver’s name, address, and taxpayer identification number. You need this information to claim:
- Dependent care benefits through your employer.
- Child and dependent care credits on your tax return.
It may seem like overkill to use an IRS form to gather such basic information—can’t they just tell it to you?—but Form W-10 is helpful because it is short, simple, organized well, and gathers all the information the IRS requires. Plus, the fact that the provider signs the form means they are responsible for the accuracy of the information.
Who completes a Form W-10?
Your caregiver or their employer completes the form. You, as the taxpayer, report the information from the form on your tax return. You report it to your employer when you are using their dependent care benefit (DCB) flexible spending account (FSA).
Where do I include the information from Form W-10 on my tax return?
Form W-10 information helps you complete Form 2441, the IRS Form you need to complete to claim the Child and Dependent Care Credit. You may be eligible for this credit if you paid for child or dependent care so that you could work, look for work, or attend school full time.
Do I file Form W-10 with my tax return?
You do not file the W-10 directly with the IRS. In fact, the IRS doesn’t necessarily know if you have it. But you should always keep a copy. If you face an audit or need to revisit your old tax return for some other reason and cannot verify your care provider’s details, you may open yourself up to bigger issues.
Is Form W-10 required to claim child and dependent care benefits?
No, Form W-10 is not always required. Sometimes, daycare and adult care facilities give you the necessary information another way. They may also provide their information directly to your employer on your behalf.
When should I use Form W-10?
If you pay for dependent care expenses out of your own pocket so you can work, look for work, and attend school, you can ask your caregiver or their employer to fill out Form W-10 and return a signed copy to you. That way you will have accurate information about their address and tax identification number for your Form 2441.
If your care provider voluntarily provides their tax identification number and other information, you don’t need to ask them to fill out Form W-10. However, if you provide incomplete or invalid information on your Form 2441, you will not be able to exclude employer-provided dependent care benefits from your income or apply the child and dependent care tax credit on your tax return. This can hurt your refund.
If your care provider is a formal and established business, they are more likely to have a standard process in place to provide you with the information you need to claim relevant tax benefits. In that case, you don’t need a W-10.
If you work with smaller care providers and individual care workers, such as home care attendants and nannies, it’s a good idea to ask them to fill out Form W-10 to make sure you have their current, accurate information for your tax return.
If you receive care from a tax-exempt organization, such as a church, mosque, or synagogue, they may not have a tax identification number. You can write “Tax-Exempt” in the tax identification number field on Form 2441.
Making sure you have valid information from your care provider
Dependent care comes in many shapes and sizes, and your caregiver is responsible for the information they give you for your tax return. But, since it’s your tax return—and your tax refund—you should do your best to make sure the information they give you is accurate. If you can’t substantiate the information, the IRS may not accept it.
The following are sufficient support for your provider’s tax information, if the IRS requests it:
- A completed Form W-10
- A recent record of payment or invoice from your provider on their letterhead that includes their name, address, and tax identification number
- A copy of a recent statement provided by your employer, if you receive care from a provider through your employer’s dependent care plan
- A properly completed copy of your caregiver’s Form W-4, Employee’s Withholding Certificate, if your provider is your household employee and they completed one
Is your caregiver self-employed, a household employee, or an agency employee?
For tax purposes, it’s essential for you to know if your caregiver is self-employed, should be considered your household employee, or is an employee or independent contractor hired through an app or agency dedicated to care work.
It’s a good idea to ask them directly. Here are some guidelines to help you figure it out:
- They’re often self-employed if your care worker provides similar services to other clients, working directly with each client to determine the details of their employment.
- You probably have a household employee if they come to your home and you have control over their time, responsibilities, and how they care for your dependent. You should withhold money from their pay to cover the employee’s share of Medicare and Social Security taxes as well as income taxes. When you file your taxes, complete IRS Schedule H to pay the withholding and your share of the Medicare and social security taxes. If you’ve heard of the “nanny tax,” this is it.
- When you pay an app or agency and do not pay your care provider directly, your caregiver is generally considered an employee of the agency or app provider. You should use the agency or app provider's tax identification number, name, and address when claiming child and dependent care tax benefits.
Paying a caregiver on a long-term basis may lead to a confusing tax situation. The Tax Pros at Jackson Hewitt know the ins and outs of how it all works. Your local Tax Pro can make sure you get your tax returns right, get the credits you deserve, and fulfill all your tax obligations when you’re paying someone else to care for your loved ones.
About the Author
Mark Steber is Senior Vice President and Chief Tax Information Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.