Mr. Copeland Please

[Unregistered]

I have a client who receives a subsidy from the Veterans Administration. She pays her monthly childcare bill in full, in advance. The VA deposits her subsidy payment into MY bank account, and I give her cash when it arrives. This is my first client on a federal employees subsidy. I need to know how to handle this at tax time. Do I issue her a 1099? Do I claim it as a refund to a client on my taxes? Both? Very confusing.

Also, the child's grandmother pays the childcare bill. Should the year end statement be in the grandmother's name?

Thank you.

[TomCopeland]

payment

I have a client who receives a subsidy from the Veterans Administration. She pays her monthly childcare bill in full, in advance. The VA deposits her subsidy payment into MY bank account, and I give her cash when it arrives. This is my first client on a federal employees subsidy. I need to know how to handle this at tax time. Do I issue her a 1099? Do I claim it as a refund to a client on my taxes? Both? Very confusing.

Also, the child's grandmother pays the childcare bill. Should the year end statement be in the grandmother's name?

Thank you.

If the amount the parent pays is the same amount that you get from the VA, the parent cannot claim anything towards her child care tax credit because she didn't pay for child care. Don't issue her a 1099. Don't give any end of year statement to the grandmother. Report the parent payment as income. Report the VA payment as income. Report the refund to the parent as an expense.

[Unregistered]

Thank you for the reply. More questions!

If the amount the parent pays is the same amount that you get from the VA, the parent cannot claim anything towards her child care tax credit because she didn't pay for child care. Don't issue her a 1099. Don't give any end of year statement to the grandmother. Report the parent payment as income. Report the VA payment as income. Report the refund to the parent as an expense.

Her tuition is more than the subsidy. Tuition is $900 per month and subsidy is $300. So if I understand you right, I report the full tuition as income, and deduct the subsidy as an expense under customer refund, correct?

The grandmother pays me directly. She mails me the check. The child's mother pays me absolutely nothing. She is already pressuring me to answer her questions about the end of year statement. She says she is entitled to claim the full $900 per month. She doesn't want her subsidy payments "taken off" that amount. Basically, she wants a year end statement that says she paid $10,800 in child care exoenses, when in fact, she paid $0. The grandmother paid $10,800. And mom pocketed $3600 in VA subsidy.
Who gets the end of year statement then? Both mother and grandmother want the statement. Very confused!

[MarinaVanessa]

If grandma is paying you directly by check then the statement should be addressed to whoever the name is on the checks, well that's what makes sense to me.

Are you giving the grandmother the cash back or are you giving the mother the cash back? Also, you might want to start issuing the refunds in check from now on instead of the cash otherwise how will you prove that you refunded her cash? If you don't have/do checks then I'd get one of those receipt books and write out the amount that you are refunding and have the grandmother's name on the receipt as the recipient (since the checks are hers) and have whoever you hand the cash to sign it before handing the cash over. This way you are out of it and mom and grandma can work out who is going to claim what on their own.

If grandma is giving you money and not getting a full refund then I'm assuming that you would have grandma (because it's her name on the checks) mail you a W-10 and you can fill one out and mail it to her. The amount, I'm assuming, should reflect only the amount that she was actually out of pocket ... as in take the full amount that grandma paid for the full year and deduct the amount that you refunded from it and that amount is what can be claimed. If grandma wants to let mom claim it then grandma can make that decision and give the w-10 to her herself and keep you completely out of it.

This is what makes sense to me considering the situation but maybe Tom Copeland can clarify it if I'm wrong.

[TomCopeland]

payment

Her tuition is more than the subsidy. Tuition is $900 per month and subsidy is $300. So if I understand you right, I report the full tuition as income, and deduct the subsidy as an expense under customer refund, correct?

The grandmother pays me directly. She mails me the check. The child's mother pays me absolutely nothing. She is already pressuring me to answer her questions about the end of year statement. She says she is entitled to claim the full $900 per month. She doesn't want her subsidy payments "taken off" that amount. Basically, she wants a year end statement that says she paid $10,800 in child care exoenses, when in fact, she paid $0. The grandmother paid $10,800. And mom pocketed $3600 in VA subsidy.
Who gets the end of year statement then? Both mother and grandmother want the statement. Very confused!

Thanks for the clarification. Since the mother paid you nothing, the mother is not entitled to claim the child care tax credit and you should not give her any end-of-the year receipt. You will report $900 as income and $300 as a refund. Only the grandmother gets a receipt at the end of the year. Subtract the refund from the amount the grandmother paid you for her receipt, regardless of who got the $300. Tell the mother she can fight this issue out with the grandmother, but you should not give any receipt to the mother.

[Unregistered]

Thanks for the clarification. Since the mother paid you nothing, the mother is not entitled to claim the child care tax credit and you should not give her any end-of-the year receipt. You will report $900 as income and $300 as a refund. Only the grandmother gets a receipt at the end of the year. Subtract the refund from the amount the grandmother paid you for her receipt, regardless of who got the $300. Tell the mother she can fight this issue out with the grandmother, but you should not give any receipt to the mother.

Thank you kindly, sir!