The Tax Consequences of Food Program Participation

Family child care providers who join the Food Program at the lower Tier II rate will still benefit financially. Here are the tax consequences of the two-tiered system for July 1, 2009, through June 30, 2010, based on a provider caring for four children:

 

Tier I

Higher Food Program Payment

Tier II

Reduced Food Program Payment

Not on Food Program

Parent Fees (4 children)

$22,000

$22,000

$22,000

Food Program Reimbursements

+ 4,2221

+ 2,0282

        + 0

Total Income 

   26,222

   24,028

  22,000

Business Expenses

- 10,000

- 10,000

- 10,000

Food Expenses

  - 4,000

  - 4,000

  - 4,000

Profit

  12,222

  10,028

    8,000

Federal Taxes (37%*)

  - 4,522

  - 3,710

  -2,960

Cash on Hand at End of Year

  $7,700

  $6,318

  $5,040

Note: As the example shows, providers who receive lower reimbursements from the Food Program are still better off than if they receive no reimbursements. The provider in this example who remains on the Food Program will have $1,278 ($6,318-5,040) more cash on hand at the end of the year than if they left the Food Program.

  1. Based on a reimbursement of $4.06 per day, for four children (2009-2010 reimbursement rate).
  2. Based on a reimbursement of $1.95 per day, for four children ($1.33 lunch & supper, $0.44 breakfast, $0.18 snack). 
    Rates go up each July.

*Based on 25% federal income tax, plus 12% net social security tax.