A Non-Paying Parent

February 2003

Unfair as it may seem, you cannot claim nonpayment for child care services as a bad debt on your taxes. Even though you provided quality care for a child and were not paid for that service, it is not considered a business expense. You will not have to report this as income, of course, and therefore you will not pay taxes on it, but it cannot be considered a loss.

What can be done? You could have written into your signed contract with the parent that the last week or two of services has been paid for in advance, thereby eliminating the problem. If you do not currently make contracts with your parents, you should do so. A great resource for contracts is Family Child Care Contracts and Policies. This book covers everything you will need to know about creating policies and contracts, business relationships with parents, and a host of other information including sample forms needed by any professional provider.

If a parent leaves owing you money for child care services, you should consider taking the parent to small claims court. Granted, this will mean time away from your business and some court-related fees, but fees can be deducted as a business expense in the year in which they occurred. If you win in court, any fees you paid for court-related costs will be added to what the parent owes you. Sometimes what the parent owes you is only a small amount, and you may not think it is worth the time or effort of going to court. Or maybe the money owed is substantial and could mean a lot in terms of income to you and your family. For whatever reason, consider taking action against a nonpaying parent should this situation happen in your business. Also, if you do not have a contract term that requires prepayment of the last week or two of service, consider adding this as well. It could save you a lot of time and frustration.