How to Calculate Your Time-Space Percentage (Step by Step, With Examples)
Learn how to calculate your time-space percentage for home daycare taxes, step by step, with a simple worked example and the IRS rules in plain words.
Read this guideHome › Guides & Articles › Home Daycare Tax Forms Explained: Schedule C, Form 8829 and Schedule SE
Home Daycare Tax Forms Explained: Schedule C, Form 8829 and Schedule SE
Daycare taxes look scary until someone explains the forms in plain words. Most home providers deal with three main forms. Here is what each one does and where your numbers come from.
The big picture
Most home daycare providers are sole proprietors. That means there is no separate business tax return. Instead, your daycare is reported on forms that attach to your own personal tax return.
Think of it like a small assembly line. One form handles your home, one handles your business income and costs, and one handles the Social Security and Medicare tax on your profit. Here is each one.
Good to know: If you set up an LLC or another business type, your forms may differ. Ask a tax professional about your setup.
Schedule C: your daycare income and expenses
Schedule C is where your daycare business lives on your tax return. At the top, you report all the money you earned: parent tuition, registration fees, and payments from subsidy programs and the food program.
Below that, you list your business expenses by type: food, supplies, insurance, license fees, and more. Income minus expenses equals your profit. That profit is what you pay income tax on, and it also feeds the next form.
- Income: tuition, fees, subsidy payments, CACFP payments
- Expenses: food, toys and supplies, insurance, training, and more
- Result: your net profit (or loss) for the year
Form 8829: the business use of your home
Form 8829 is where the time-space percentage does its work. This form is only for the costs of your home itself: rent or mortgage interest, property tax, utilities, home insurance, and repairs.
On the form, you enter the size of your home, the space used for daycare, and your business hours. That gives your time-space percentage, and the form applies it to your home costs. The Time-Space Percentage Calculator works out that percentage for you before you sit down with the form. The home deduction from Form 8829 then moves onto Schedule C.
Good to know: Keep your hours log, your home size notes, and your utility and rent records with this form in mind all year.
Schedule SE: self-employment tax
When you work for an employer, Social Security and Medicare taxes come out of your paycheck. When you are self-employed, you pay them yourself through Schedule SE, the self-employment tax form.
The self-employment tax rate is 15.3 percent of your net profit, in most cases. Schedule SE takes your profit from Schedule C and figures this tax. It is added to your tax return along with your regular income tax.
Good to know: Half of your self-employment tax is deductible on your main return. Tax software handles this part for you.
How the three forms fit together
The flow is simple once you see it. Form 8829 figures your home deduction and sends it to Schedule C. Schedule C adds up your income, subtracts all your expenses including the home deduction, and finds your profit.
Your profit then does two things: it is taxed as income on your main return, and it goes to Schedule SE to figure your self-employment tax. Good records all year make all three forms much easier.
- Step 1: Form 8829 — home costs times your time-space percentage
- Step 2: Schedule C — income minus all expenses equals profit
- Step 3: Schedule SE — self-employment tax on that profit
Try it free: use our Time-Space Percentage Calculator — it does this math for you in about a minute, right in your browser.
Common questions
Do I file these forms if I only watched a few children?
If you earned money providing care, you generally must report it, even if it was a small amount or only part of the year. The same forms usually apply.
What if I am not licensed?
You still report your income. But note: to claim the business use of your home on Form 8829 as a daycare provider, you must have applied for, received, or be exempt from state licensing.
Can tax software handle these forms?
Yes, most tax software that supports self-employment walks you through Schedule C, Form 8829, and Schedule SE. A provider-savvy tax preparer is also a good choice, especially in your first year.
Keep reading
What Counts as Business Hours for Home Daycare Taxes?
Which hours count as business hours for your home daycare taxes? Care hours, cleaning, cooking, paperwork and more, explained in simple words.
Read this guideHome Daycare Expenses List: 45+ Costs Providers Can Deduct
A plain-words list of 45+ home daycare expenses you can deduct, from food and toys to your home costs, plus what you cannot deduct and records to keep.
Read this guide9 Home Daycare Tax Mistakes That Cost Providers Real Money
Nine common home daycare tax mistakes that cost providers real money, from skipping the hours log to misusing the food deduction, plus the simple fix for each.
Read this guideDisclaimer: HomeDaycareTools.com provides free calculators and general information for planning purposes only. Nothing on this site is tax, legal or financial advice. Tax rules, CACFP rates and licensing rules change — confirm your figures with IRS Publication 587, your CACFP sponsoring organization, your state licensing agency, or a qualified tax professional before filing or signing anything.