WORKING PARENTS who have to pay someone to watch their children are getting what for some is a nasty surprise: They have to provide their baby sitter's Social Security number to the Internal Revenue Service.
As a result of the Family Support Act of 1988, parents who want to continue to claim the child and dependent care tax credit have to put on their tax returns the name, address and tax identification number of the day-care provider or baby sitter who watches their children.
The new law was aimed not at parents but at day-care providers who do not report their income, says Sally Payne, a tax analyst with the National Association of Tax Practitioners.
"This means care providers who accepted cash payments for their services will no longer be able to avoid reporting the income," she says.
For many parents, the law will not be much of a problem: Professional day-care centers, nursery schools and centers operated by churches and charitable organizations will give parents a new tax form, Form W-10, which will contain all the necessary information.
When those parents fill out the special form needed to claim the child care credit, Form 2441, they simply have to copy some information onto it from Form W-10.
But for the many parents who contribute to the "underground economy" by paying cash to baby-sitters, the reporting requirement is not a welcome change, because many baby-sitters do not report their income and many parents do not pay Social Security taxes for their baby-sitters.
Local branches of income tax preparer H&R Block told taxpayers of the change while preparing their 1988 tax returns.
"They were surprised and disappointed," says Steve Mosher, the firm's district manager. "The reality is that it's tough to find a good baby sitter and a lot of baby-sitters are working under the table. People told us they were faced with the dilemma of 'Do I follow the IRS requests or do I just not take the credit?'"
Mosher said some parents told him they would lose their baby-sitters if they were forced to provide their Social Security numbers to the IRS.
One West Seneca man -- who asked that his name not be revealed -- says he and his wife probably will have to stop claiming a dependent care credit for their young child, who is watched every day by a neighbor while the man and his wife work.
They pay the neighbor $13 a day to watch their child; The neighbor does not report the income on her tax return.
"All these new laws that they are making are closing the loopholes, but they are closing them on us, the working taxpayers," he says. "They are hitting all the people who are trying to get ahead."
The child-care credit can add up to a significant tax break, depending on a taxpayer's income. Taxpayers who make less than $10,000 a year can get credits of up to $720 for one child, and up to $1,440 for two children.
The size of the credit declines with income until it reaches a minimum for taxpayers with incomes over $28,000 of $480 for one child and $960 for two or more children.
Mosher says the credit is very popular and is being used by more and more taxpayers each year as more families come to depend on two incomes to make ends meet.
To comply with the new law, taxpayers must obtain Form W-10 from their day-care provider, or a copy of the provider's Social Security card, a recently printed letterhead or printed invoice that includes the required information. After entering the required information onto their tax returns, parents should save the W-10 or other supporting documents in case the credit is questioned during an audit.
If day care is provided by a taxpayaby sitters
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er's employer, a copy of the statement furnished by the employer, which includes name, address, and taxpayer identification number, can be used.
Taxpayers who employ baby-sitters in their own homes and who pay the baby sitter more than $50 a quarter must make Social Security payments for the sitters. Also, if the sitter is paid more than $600 in one year, the taxpayer employing the sitter must give them a W-2 Form.
For more information, taxpayers should refer to IRS Publication 503, "Child and Dependent Care Credit." That publication and blank W-10 forms can be obtained at IRS offices or by calling the agency at 800-424-3676.