With the release of the 2014-2015 Food Program reimbursement rates in July [http://www.tomcopelandblog.com/2014/07/2014-2015-food-program-reimbursement-rates-announced.html], some family child care providers continue to question whether it’s worthwhile or not for them to join or stay on the Food Program.
It’s always financially beneficial for you to be on the Food Program! Here are some frequently asked questions from providers who question this.
Question: My Food Program sponsor tells me that my Food Program reimbursements are not taxable income. Is this true?
Answer: No! Reimbursements you receive from the Food Program are taxable income. (The only exception to this rule is any reimbursements you receive for your own children are not taxable.) Some people think that this is a reason not to participate on the Food Program. Wrong!
Let’s look at an example: Natasha provider is not on the Food Program, earns $30,000 from parents and spends $5,000 on food. She can deduct the $5,000. She then joins the Food Program and receives $4,000 in reimbursements from the Food Program. She now reports $34,000 in income and $5,000 in food expenses. You don’t lose your ability to claim the same amount in food expenses just because you join the Food Program! So, her income is now $4,000 higher, meaning she will pay more in taxes because of this extra income. If she is in a high tax bracket of 45% (25% federal income tax, 15% Social Security tax, and 5% state income tax) she will owe an additional $1,800 in taxes. Is paying more in taxes a reason to refuse to join or quit the Food Program? No. Natasha has an extra $2,200 in her pocket, after taxes ($4,000 income - $1,800 taxes = $2,200).
Another way of saying this is if Natasha was on the Food Program and then quit, she would lose $2,200 in after-tax income.
So, even though Food Program reimbursements are taxable income, you are still better off financially after joining.
Question: Don’t I lose money on the Food Program because the lower (Tier II) reimbursement rate doesn’t cover the cost of my food?
You never lose money when you are on the Food Program. It’s true that your reimbursement check may not pay for all of the food you buy for your business. However, it’s always better to get some money for the food you are buying than to receive nothing at all! If you were not on the Food Program, you would still have to prepare the menus, buy the food, cook the food, and serve it.
Think of the Food Program as a job that’s paying you to do some paperwork. How much are you being paid per hour for doing the paperwork required by the Food Program? If you spend three hours per week on paperwork (and most providers can do this), that’s 156 hours a year. If you care for four children, serve one breakfast, lunch and one snack each day, and receive the lower Tier II rate (as of July 2014), you would earn $2,256 ($564 per child x 4). Therefore, your hourly wage would be $14.46 ($2,256 divided by 156 hours). If you spent $5,000 on food, the $2,256 wouldn’t cover this, but why would you turn down $2,256 to help you pay for some of this cost? If you received the higher Tier I reimbursement rate, you would be earning $30.05 per hour ($1,172 per child x 4 divided by 156 hours = $30.05). Not bad regardless of which reimbursement rate you receive!
Question: Is it really worth doing all that paperwork for a 20-cent snack (current Tier II rate)?
Answer: Yes! Let’s look at an example. If you claim a 20-cent snack for the entire year, your total reimbursement would be $52 ($.20 a day x 5 days a week x 52 weeks). If you care for four children, the yearly total would be $208. If it takes you five minutes a day to record these snacks, that will amount to 21.7 hours a year (5 minutes a day x 5 days per week x 52 weeks). This means that you will earn $9.58 per hour ($208 divided by 21.7 hours) for doing the paperwork. That’s probably more money per hour than you are earning caring for children!
Join The Child Care Business Partnership! Minute Menu and Tom Copeland have teamed up to offer you the chance to reduce your taxes, receive direct assistance if you are audited, and personalized business advice so you can be more successful. For $15 a year you can join The Child Care Business Partnership and start receiving direct help from Tom Copeland in using Minute Menu Kids Pro. For more information: http://www.tomcopelandblog.com/2013/07/the-child-care-business-partnership-tom-copeland-minute-menu-and-you.html, or email Tom at firstname.lastname@example.org.