Rev. Rul. 56-70

Advice has been requested whether an individual performing child care services in her own home is the employee of the parent or parents engaging her for purposes of the Federal Insurance Contributions Act (chapter 21, subtitle C, Internal Revenue Code of 1954).

In the instant case, an individual takes care of a child whose parents work during the day. The parents leave the child at the individual's home in the mornings before going to work and call for the child in the evenings upon returning from work. The parents rely upon the individual's judgment in caring for the child and issue no instructions other than relative to diet, health and rest and occasionally relative to special foods, medicines, etc., the child may require from time to time. The individual is told whom to contact in case of emergency. She makes her own determinations as to the amount of attention the child requires, the types of meals to be served, and the manner in which she shall cope with any situation likely to arise in rendering child care services. She is free to perform her own household chores at any time during which she feels that the child does not require her personal attention, such as, while the child is taking an afternoon nap. She receives a fixed weekly fee for her services, does not hold herself out to the public as being engaged in such work, and is not licensed for such work.

Section 3121(d) of the Federal Insurance Contributions Act provides that the term "employee" means, among other things, any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee. The guides for determining whether, under such rules, an employer-employee relationship exists are found in section 408.204(c) of Regulations 128, applicable to the Internal Revenue Code of 1954 by virtue of Treasury Decision 6091, C. B. 1954-2, 47.

Whether an employer and employee relationship exists depends upon the particular facts in each case. Under circumstances similar to those present in this case, where parents leave their child at a person's home each day to be cared for by that individual for a weekly fee, issuing no instructions other than whom to contact in case of emergency, or how and when to give the child medicine in the event of illness, there does not exist, under the usual common law rules, a sufficient right of control on the part of the parents to establish, for Federal employment tax purposes, the relationship of employer and employee between the parents and the individual who cares for the child. Accordingly, the individual is not an employee for such purposes.

Section 1402 of the Self Employment Contributions Act of 1954 (chapter 2, subtitle A, Internal Revenue Code of 1954) provides in part:

(a) NET EARNINGS FROM SELF-EMPLOYMENT.--The term "net earnings from self-employment" means the gross income derived by an individual from any trade or business carried on by such individual, less the deductions allowed by this subtitle which are attributable to such trade or business, * * *.

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(c) TRADE OR BUSINESS.--The term "trade or business," when used with reference to self-employment income or net earnings from self-employment, shall have the same meaning as when used in section 162, * * *.

As a general rule, when a person is engaged in an occupation or profession for profit which constitutes, in whole or in part, his livelihood and, as to such occupation or profession, is not regarded as an employee for purposes of the taxes imposed by the Federal Insurance Contributions Act or otherwise excluded from the self-employment provisions, he is engaged in a "trade or business" within the meaning of section 1402(a), supra.

In the instant case it is held that, in caring for a child in her own home under the circumstances set forth above, the individual is engaged in a "trade or business," the income from which is includible in computing net earnings from self-employment for purposes of the Self-Employment Contributions Act of 1954. The fact that she is not licensed and cares for only one child is not controlling.