Unlicensed Home Daycare in Indiana: Rules, Penalties, and Defenses

An unlicensed home daycare in Indiana is legal only while you stay below the state’s threshold: you can care for up to seven unrelated children, with no more than four unrelated infants, at one time without a license from the Indiana Family and Social Services Administration (FSSA). Cross that line and you are operating illegally, exposed to civil fines of up to $100 per day, a court order to shut down, and Class B misdemeanor charges that can rise to felonies if a child is hurt.

When a License Is Required

Indiana Code 12-17.2-5 governs child care homes and prohibits anyone from operating one without an FSSA-issued license.¹ The trigger is regular care of more than seven unrelated children, or more than four unrelated infants, at one time. Children related to you by blood, marriage, or legal guardianship generally do not count toward the cap.

Watching a neighbor’s two kids after school a few days a week is not a child care home. Advertising on social media, charging fees, and filling your living room with other people’s children on a daily basis is, whatever you call it.

Programs That Are Exempt Even Above the Threshold

Under IC 12-17.2-2-8, some programs are exempt from licensing regardless of size:

Programs for children in kindergarten through 12th grade run by a public or private school.
Nonresidential programs providing child care for fewer than four hours per day.
Recreation programs operating for no more than nine consecutive weeks.²

If your arrangement fits none of these and exceeds the child count, you need a license.

Civil Penalties for Operating Without a License

Investigations usually start with a complaint. Anyone, including a parent or neighbor, can report a suspected unlicensed home to FSSA, and the Division of Family Resources has statutory authority to investigate the premises.¹ Licensing consultants may visit the home, count the children present, observe conditions, and interview the provider.³

Once unlicensed operation is confirmed, FSSA can seek a civil penalty of up to $100 per day for every day the home operated without a required license.⁴ That figure runs continuously. Six months of unlicensed operation produces potential liability exceeding $18,000.

The state can also seek injunctive relief, a court order forcing you to stop until you obtain a license.⁴ Violating that order exposes you to contempt proceedings and further penalties. Many providers receive a warning or cease-and-desist letter first, but FSSA is not required to give you one.

Criminal Charges

Knowingly or intentionally operating a child care home without a license is a Class B misdemeanor.¹ That carries up to 180 days in jail and a fine of up to $1,000. It is the baseline penalty for the licensing violation alone, regardless of whether any child was harmed.

If a child is actually hurt in unlicensed care, the exposure changes character. Indiana’s neglect-of-a-dependent statute reaches anyone who has care of a child, whether assumed voluntarily or by legal obligation. Knowingly placing a child in a situation that endangers life or health is a Level 6 felony. Bodily injury raises it to a Level 5. Serious bodily injury raises it to a Level 3. If the child dies, the provider faces a Level 1 felony carrying 20 to 40 years in prison.⁵ A home that has never been inspected for safety hazards is particularly exposed to these charges when something goes wrong.

Defenses If You’re Investigated

The most direct defense is the count itself. If FSSA’s tally is wrong, or some of the children present are your own relatives, the licensing requirement may never have applied. The state has to show enough unrelated children in your care to trigger the statute.

You can also argue you fit a statutory exemption, most often the under-four-hours-per-day rule or the seasonal recreation program exemption under IC 12-17.2-2-8.² Procedural challenges are another route: if investigators gathered evidence outside the authority granted by the statute, an attorney may be able to suppress it. Any of these defenses depends on documentation. Keep records of who is in your home, when, and what family relationships apply.

Financial and Insurance Costs Beyond Fines

Two consequences of operating unlicensed hit your wallet before any state enforcement does.

The first is a tax deduction you cannot take. Home daycare providers can deduct a portion of household expenses on IRS Form 8829, but only if they have applied for, been granted, or are exempt from state licensing. Operating unlicensed where Indiana requires a license disqualifies you from the deduction entirely.⁶

The second is insurance. Most liability insurers require proof of licensure before they will write a policy covering daycare operations. Homeowners policies sometimes offer a daycare endorsement, but those riders are designed for very small operations: three or four children, fewer than 20 hours per week, no employees. Even with the rider, the limits may not cover a serious claim. Without any coverage, you are personally on the hook for every injury or property damage claim, and a single incident can reach your savings and your home.

Federal Rules That Apply Even If You’re Legally Unlicensed

Being below Indiana’s licensing threshold does not put you outside federal law. Several rules apply to anyone caring for other people’s children for pay, and informal providers routinely miss them.

Disability Access Under the ADA

Title III of the Americans with Disabilities Act covers nearly all child care providers, including small home-based operations exempt from state licensing. You cannot turn a child away simply because of a disability. You must make reasonable changes to your policies and routines to include children with disabilities, unless doing so would fundamentally change your program or create a direct safety threat. Practical examples include adjusting a “no pets” rule for a service animal, diapering an older child who needs it because of a disability, or helping a child remove leg braces if that does not require leaving other children unattended.⁷

Crib Safety

Cribs used for napping must meet Consumer Product Safety Commission standards, and family child care homes are specifically covered. Cribs manufactured on or after June 28, 2011 are presumed compliant. Older cribs need documentation showing they meet the current standard. Drop-side cribs, common before 2011, are banned outright.⁸

Taxes

Child care income is self-employment income, subject to federal self-employment tax at 15.3% (12.4% for Social Security on earnings up to $184,500 in 2026, plus 2.9% for Medicare on all earnings).⁹¹⁰ Parents who claim the child care tax credit will need your taxpayer identification number, either your Social Security number or an EIN if you have set up a business entity.¹¹

Paying Assistants

If you hire help, the Fair Labor Standards Act applies. You must pay at least the federal minimum wage of $7.25 per hour and time-and-a-half over 40 hours in a workweek. Time your assistants spend in state-mandated training counts as compensable work.¹²

Getting Licensed

If you are already operating above the threshold, or you want the benefits licensing brings, applications go through FSSA’s Office of Early Childhood and Out-of-School Learning.³ The core steps are background checks, a home safety inspection, and required training.

Federal law requires all staff in licensed child care programs to pass comprehensive background checks: the National Sex Offender Registry, state child abuse and neglect registries in every state the applicant has lived in during the previous five years, fingerprint-based state and FBI criminal history searches, and reference checks from non-family sources. Applicants typically pay for the fingerprint checks.¹³ Training covers health and safety orientation, CPR and first aid, and ongoing continuing education in child development and emergency preparedness. Once licensed, your home is subject to regular monitoring visits.³

The process takes time and money up front. In return, it opens access to subsidy payments, liability insurance, and the Form 8829 deduction, none of which are available to a provider who should be licensed and is not.

1
Indiana Code. IC 12-17.2-5 Chapter 5 Regulation of Child Care Homes
2
Indiana General Assembly. Indiana Code 12-17.2-2-8 Licensure Exemptions
3
Family and Social Services Administration. Laws Rules and Related Policies
4
Indiana Code. IC 12-17.2-4 Chapter 4 Regulation of Child Care Centers
5
Indiana General Assembly. Indiana Code 35-46-1-4 Neglect of a Dependent
6
Internal Revenue Service. Instructions for Form 8829 Expenses for Business Use of Your Home
7
ADA.gov. Commonly Asked Questions About Child Care Centers and the Americans with Disabilities Act
8
Consumer Product Safety Commission. Enforcement Guidance for Child Care Providers
9
Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
10
Social Security Administration. What Is the Current Maximum Amount of Taxable Earnings
11
Internal Revenue Service. Form W-10 Dependent Care Provider Identification and Certification
12
U.S. Department of Labor. Daycare Centers and Preschools Under the Fair Labor Standards Act
13
Child Care Technical Assistance Network. Background Screening