Home daycare taxes for 2026: the time-space percentage, standard meal rates, food program income and year-end statements

The basics: Schedule C and self-employment tax

A family daycare is a business. You report income and expenses on Schedule C, figure the home part on Form 8829 (or the simplified method), and pay self-employment tax on the net profit, on top of income tax.

To deduct rooms your family also uses, you have to meet the daycare exception: you're in the business of caring for children (or adults 65 and older, or people who can't care for themselves), and you've applied for, been granted, or are exempt from a state license. If an application was rejected or a license revoked, the exception doesn't apply.

What counts as income

• Tuition and fees parents pay, including registration and late pickup fees
• Payments from a child care subsidy agency for the families it covers
• CACFP food program payments, but only the part that's more than your food costs (see below)

All of it counts whether or not you get a 1099 for it.

The time-space percentage

Because your daycare shares your home, you deduct home costs by two percentages multiplied together:

• Space: the square feet regularly used for daycare divided by your home's total square feet
• Time: the hours that space is used for daycare divided by 8,760, the hours in a year

Apply the time-space percentage to indirect home costs: mortgage interest or rent, real estate taxes, utilities, homeowner's or renter's insurance, general repairs and depreciation on the house. With $30,000 of those costs, this example deducts about $6,860.

• Rooms used only for daycare count at 100%, not the time-space percentage.
• Expenses only for the daycare space, like painting the playroom, use the time percentage alone.
• Count every hour the space is used for your daycare business, and keep the log that proves it.

Form 8829 also caps the home deduction at the business's income from it, and carries any extra forward to next year.

The simplified method

Instead of Form 8829, you can take $5 per square foot of space used, up to 300 square feet. For daycare, the $5 rate is reduced by the time fraction unless at least 300 square feet is used regularly and exclusively for daycare. In the example above, that's about $5 × 32.6% × 300 = $490, far less than the $6,860 from the regular method. The simplified method saves paperwork, and no depreciation is taken in a year you use it, but for most daycares it costs money.

Food: standard meal rates vs. actual costs

Each year you choose to deduct food either at actual cost (every grocery receipt, minus food your own family ate) or at the IRS standard meal and snack rates. If you use the standard rates, you use them for all eligible children that year; you can switch next year.

The IRS bases each year's rates on the CACFP Tier I rates in effect on December 31 of the year before. For 2026, those are the rates that started July 1, 2025:

The IRS publishes the rates in Publication 587; confirm them in the 2026 edition when it's out. The rules:

• Per child, per day: up to one breakfast, one lunch, one dinner and three snacks.
• Eligible children only: children in your care for the business. Not your own children, children who live in your home, or a relative's child you watch as a personal favor.
• Keep a meal log: each child's name, the dates and hours they attended, and the meals and snacks served.
• Non-food supplies like paper plates and utensils aren't in the rates; deduct them separately.

For a child who eats breakfast, lunch and two snacks every day, the standard rates come to $6.84 a day, or about $1,710 for 250 days.

How CACFP payments are taxed

Food program reimbursements aren't simply income. You compare them with your food costs for eligible children:

• Payments more than your food costs: report the difference as income.
• Food costs more than your payments: deduct the difference as an expense.
• Leave out your own children, both the payments for them and their food, even if they're eligible for the program, and even if your sponsor sends you a 1099-MISC.

With the standard rates, Tier I providers in early 2026 come out about even, because the Tier I reimbursement and the standard rate are the same. CACFP rates rose on July 1, 2026 (Tier I lunch went to $3.31 in the contiguous states), so the second half of the year can leave a little income. Tier II providers get lower reimbursements and usually have a deduction left over.

Other deductions

• Toys, books, art supplies, cleaning supplies and paper goods
• Equipment and furniture like cribs, high chairs and outdoor play sets (depreciated or expensed)
• Licensing fees, required training, CPR and first aid classes
• Liability insurance for the daycare
• Advertising, software and your phone's business share
• Car use for field trips and supply runs: 72.5¢ a mile through June 30, 2026 and 76¢ from July 1
• Wages to an assistant, who may be your employee

Items your family also uses, like a TV or a washing machine, are deductible only for their business-use share.

Year-end statements for parents

Parents claiming the child and dependent care credit or a dependent care FSA have to report your name, address and taxpayer identification number on Form 2441. Many will ask you to fill out Form W-10, or you can give each family a year-end statement with the same details and the total they paid you. Subsidy agency payments aren't part of what the parents paid.

Send statements in January. Parents file earlier than you'd think, and a statement that matches your records heads off disputes.

Paying during the year

No one withholds tax from what parents pay you. If you'll owe $1,000 or more, the IRS expects quarterly estimated payments: for 2026 income, April 15, June 15 and September 15, 2026, and January 15, 2027. Our free quarterly estimated tax calculator works out your self-employment and income tax and what to pay by each date.

If you sell your home

You can usually still exclude up to $250,000 of gain ($500,000 for many married couples) on your main home, and you don't have to split the gain between the daycare and home parts if the daycare was inside the house. But the part of the gain equal to depreciation allowed or allowable on the daycare use since May 1997 can't be excluded, and your basis drops by that depreciation even if you never claimed it. That's a reason to claim it.

Records to keep

• Attendance: each child's name, dates and arrival and pickup times
• An hours log for the time percentage
• A floor plan with the square feet of each room and how it's used
• The meal log, if you use the standard rates, or food receipts if you don't
• CACFP claim and payment statements
• Receipts for supplies, equipment and home costs
• Each family's payments and the year-end statements you gave them
• Your license, or proof of exemption

Quick answers

Tools for home daycare providers

Sources

• IRS Publication 587, Business Use of Your Home (Including Use by Daycare Providers) (opens in a new tab) (daycare exception, time-space percentage, simplified method, standard meal rates, food program payments, sale of home)
• USDA: CACFP reimbursement rates, July 1, 2025 to June 30, 2026 (opens in a new tab) (basis for the 2026 standard meal rates)
• USDA: CACFP reimbursement rates, July 1, 2026 to June 30, 2027 (opens in a new tab) (published Jul 27, 2026)
• IRS: About Form W-10 (opens in a new tab) (provider name, address and taxpayer ID for Form 2441)
• IRS: Standard mileage rates (opens in a new tab) (2026 rates)