Here are four ways to save real money on child care costs, including staying home, starting an FSA, taking the child care tax credit and using a parent share.
Child care costs are sky-high and rising each year.
Child care in the average daycare center in the U.S. costs $11,666 per year, but prices vary between $3,582 in some areas to as much as $18,773 in others, according to a report from the National Association of Child Care Resource & Referral Agencies.
Parents in some affluent cities like San Francisco and Boston report even higher child care costs of up to $2,000 a month for infant care. That’s $24,000 a year.
Factor in transportation and other costs, and the real cost of child care in some areas could be as much as $30,000 or more. For instance, a parent who drives a child a half hour to and from daycare each day could pay $1,300 annually. That’s based on the average fuel economy and gas price, and it doesn’t factor in the cost of tires and other wear and tear.
Based on typical child care costs and typical household incomes, most single parent homes spend about half their income on child care, and two parent homes spend about 20% of their annual income.
Below are a few ways to cut down on the high cost of child care.
1. Have One Partner Stay Home
Becoming a stay at home mom or dad may sound impossible, but when parents do the numbers they may find it makes sense.
When does it make sense to have one partner stay home to take care of the kids? When one partner makes less annually than the cost of local child care.
The true cost of child care, however, isn’t so easy to pin down.
For instance, if a woman earns $50,000 a year and her husband makes only $30,000, they may want to consider having him stay home to take care of the children. After taxes, he may bring in only an additional $20,000 a year, especially figuring in the tax credits the couple misses out on because of his added income.
If their local child care costs $300 a week, they’d pay $15,600 a year. Working in travel and other costs, the couple may pay as much for child care as the husband brings in after taxes. In this case, it makes a lot of sense for the husband to quit work and become a full time stay at home dad. But there are other costs that need to be added up as well. We’ve listed a few additional child care costs below.
Health Care Costs of Child Care
Even if the couple figures they’re saving $5,000 a year by having the partner with the lower income keep their job, there are other costs to total up. For one, health care. Children in daycare tend to pick up more colds, flu, head lice and other illnesses than stay-at-home kids. While hard stats on the health care costs of child care aren’t easy to track down, the extra medical costs from having a kid in daycare could easily run into the thousands.
For instance, the average out of pocket cost for employer health plans is $2,000 a year per family member. A family with three kids in daycare that maxes out their out of pocket costs because of contagious bugs picked up in daycare could pay an extra $6,000 a year.
Lost Pay From Sick Kids
Extra medical costs from kids made sick by daycare aren’t the only potential drain on finances from child care. According to a survey by the C. S. Mott Children’s Hospital’s National Poll on Children’s Health, almost two thirds of all children in child care get sick each year. Over thirty percent of all parents worry about losing pay or even losing their jobs when they miss time at work because their children get sick.
Unquantifiable Costs of Child Care
When figuring if it’s worth it to have one parent stay home instead of putting kids in child care, factor in unquantifiable costs. One cost that’s hard to put a dollar figure on is the cost of having kids raised by someone other than a parent. Given the choice, most parents wouldn’t choose to have their kids raised by a daycare worker.
The video below from PBS outlines the high cost of child care and the choice some parents make to stay home.
2. Start a Flexible Savings Arrangement (FSA)
An FSA or Flexible Spending Arrangement can cut a hefty chunk off child health care costs.
Married couples who file their taxes jointly can put up to $5,000 a year into an FSA for child care costs. All contributions to FSAs are tax deductible, so that $5,000 is subtracted from the family’s taxable income for the year. With federal income tax rates anywhere from 20% to 28% and some state tax rates as high as 12.3%, that could quickly add up to a savings of $1,500 a year.
For more info on FSAs, check out the IRS page on FSAs here.
3. Make Use of the Child and Dependent Care Tax Credit
Families with one or more children in child care may qualify for up to a $2,100 tax credit.
The Child and Dependent Care tax credit is available to qualifying families. To qualify, a family must:
- Have earned income.
- Have a child age 12 or younger or other dependent.
- File taxes jointly.
- Have paid for the child care so one or more parents could work or look for work.
To figure the credit, families can claim either $3,000 for one child or $6,000 for more than one child. The exact amount of the credit for each family is figured by using the worksheet on IRS Form 2441.
4. Parent Share
Parents who work part time can make use of parent share arrangements to cut child care costs.
For example, a couple where one spouse works every day and the other has Tuesdays off can turn one day into two with a parent share setup.
Let’s say the couple would normally spend $1,000 a month on child care. Since Mom is home on Tuesdays, the couple can have their kids home one day a week, spending 20% less. That means they save $200 each month.
For a parent share setup, the family can find another parent nearby with one parent working part time. Let’s say the dad in the second couple has Thursdays and Fridays off. Mom from couple A can watch couple B’s kids on Tuesdays, and Dad from couple B can return the favor on Thursdays. That way, both couples end up saving not $200 a month but $400, cutting their child care costs by a total of 40% each.
Sources:
How Much You’ll Spend on Childcare – BabyCenter.com
Parents and the High Cost of Child Care – NACCRRA.org
Is it true that kids in daycare get sick more often than kids who stay home? – BabyCenter.com
Sick Kids, Struggling Parents – C. S. Mott Children’s Hospital National Poll on Children’s Health
Employer health plan deductibles see big 5-year jump – USA Today