Employer Identification Number

 How to Get an EIN

In this age of advancing technology, many providers are concerned about their privacy when giving out social security numbers to parent clients. Parents need the taxpayer identification number of their caregiver to claim the child care tax credit or to use a dependent care plan at work. As a self-employed person, family child care providers have traditionally given their social security numbers to parents for this purpose.

The IRS allows providers to obtain an Employer Identification Number (EIN) that can be used in place of a social security number. In the past, IRS rules stated that providers could not get an EIN unless employees were to be hired. Now, the IRS is allowing any providers to get their own EINs.

We strongly recommend that all providers get an EIN number for their business. You will give this number instead of your Social Security number to parents at tax time, which they will use to claim the child care tax credit. You will also use this number on your Schedule C and Schedule SE when you fill out your tax forms. (On all other tax forms, including Form 1040 and Form 1040SE, you should use your Social Security number.) Using an EIN can reduce the chances that your Social Security number will get into the wrong hands and cause you problems with identity theft.

In the past, providers sometimes had difficulty getting an EIN number because previous IRS regulations stated that a taxpayer could only get this number if they were required to by law. This is no longer a problem. Just about any provider can now get an EIN. There are three ways to get an EIN.  

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Obtain a copy of IRS Form SS-4, Application for Employer Identification Number or apply online here

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Question #10 asks for the reason you are applying for an EIN. If you are just starting your business, check the box "Started new business" and enter the words "family child care" in the space provided. If you have been in business for a while, check the box "Other" and enter the words "identity theft" in the space provided. Mail in this form to an IRS addresses listed in the instructions.

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Register for the EIN online. The application process is quicker, with fewer questions, and a simpler format to follow. Once you fill out the application online, you will instantly get your EIN.

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The new online process asks: "Why is the Sole Proprietor requesting an EIN?" You are asked to choose from one of the following choices: "Started a new business," "Hired employee(s)," "Banking purposes," "Changed type of organization," or "Purchased active business."

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You should always answer, "Started a new business" to this question, unless you are hiring employees. This may seem like a strange answer if you have been in business for a long time, but the instructions say to choose an answer that is closest to your situation. In the past, if you gave this answer, the IRS may have assumed that you were a new employer and started sending your payroll forms to file. This problem will no longer happen because the online application also asks you if you have employees.

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If you would like to talk to the IRS directly about getting your EIN, call the IRS at 800-829-4933 and you can get your number over the phone.

Giving Identification Numbers to Parents

Many parents who are now filing their tax return are eligible to claim the Child and Dependent Care Tax Credit. Parents are supposed to give their child care provider a Form W-10, a simple form that asks the provider to give her name, address, and taxpayer identification number. Usually the provider enters her social security number, unless she has obtained a taxpayer identification number. The parent is supposed to keep a copy of the W-10 with their records in case the parent is audited. Few, if any, parents are giving the W-10 form to providers. Instead, the parent is asking the provider directly for her social security number.

In this age of advancing technology and the loss of privacy, many providers are concerned about giving out their social security number to parent clients who are claiming the federal child care tax credit or who are using a dependent care plan at work. As self-employed workers, family child care providers have traditionally given their social security numbers to parents for this purpose.

Contrary to popular belief, family child care providers are not required to give their social security number or an identification number to the parents of the children in their care. But it is a good business practice to do so. 

Parents can still claim this credit even if the provider refuses to give out their social security number, by showing that they made a good faith effort to get the number. The best way to show this effort is to mail a Form W-10 to the provider's address. The parent should then attach a note to their child care credit form saying that the provider refused to provide this information. If this happens, the IRS is more likely to audit the provider because they will suspect that the provider did not report all of her income.

The provider is not responsible for finding a copy of Form W-10 and giving it to the parent. Nor is the provider responsible for tracking down a parent who left earlier in the year and giving them their social security number.

Some providers do not want to give out their social security number to parents who left owing them money. Such providers who have good records about how much parents paid them throughout the year and don't mind having the IRS question them about their income may want to refuse to cooperate with a parent until the parent pays them what is owed.

In the end, there is no IRS penalty for providers who refuse to give out their identification number. If the parent gives the Form W-10 to the provider and the provider refuses to fill it out, only then does the provider face a potential $50 penalty for not filling out the form. It is highly unlikely that the parent will send the W-10 to the provider, so providers should not worry about this.

If the provider is on good terms with the parent, I recommend that the provider get a copy of Form W-10, fill it out and give a copy to each parent. It's okay to give out your new identification number to some parents even though you may have already given out your social security number to other parents earlier.

Once you have an EIN number, use it with parents and on your Schedule C and Schedule SE. On all other forms, including Form 1040 and Form 1040SE, use your social security number. If you plan to be in business for a number of years, it may be in your interest to protect your privacy by obtaining an EIN. We also recommend that providers give parents an end-of-year receipt.

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