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“College? What About the Cost of Daycare?!?”

Concerned mother crunching finances with young baby in background.
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The average amount parents can expect to spend on full-time daycare for kids up to the age of 4 has reached a whopping $9,589 a year, says a 2016 report from New America. According to College Board’s 2017 numbers, this is comparable to the cost of in-state college tuition. While the final number can vary dramatically depending on what type of care you need, which state you’re in, and the hours per week your child is enrolled, chances are, the amount due will raise an eyebrow.

If you are worried about how much it’s going to cost to enroll your child in daycare, or would like to explore ways you can save, you are not alone. Below are a few tips to help you stretch your savings.

Be sure to consult your tax advisor and employer for advice related to your taxes before making any decisions.

Explore Dependent Care FSA

Flexible Spending Account, or FSA, is a tax-advantaged financial account—governed by the IRS—that is set up with your employer.

Using this vehicle, parents can save an average of 30% on childcare. All funds are withdrawn from your paycheck before any deposits are made and before any taxes are deducted.

If your child is under 13, you can use an FSA for the following:

  • Babysitting
  • Nanny Expenses
  • Daycare
  • Nursery School
  • Preschool
  • Before and After School Care
  • Summer Day Camp

Keep in mind that if you’re married and filing jointly, or if you are single, you can contribute a maximum of $5,000 a year for child care to your FSA.

Child and Dependent Care Credit

Any amount you spend on child care that enables you to either work or look for employment might entitle you to a child and dependent care tax credit. The amount of the credit depends on how much you pay for the child care and your overall gross income (and keep in mind, may be changing with new tax laws). If you take advantage of such programs like the Dependent Care FSA, you must subtract the amount of those benefits from the dollar limit that applies to you. All in all, no more than $3,000 can be received for each child.

If you qualify for a child and dependent care tax credit, you’ll need to fill out Form 244110401040A, or 1040NR.

Should One Parent Stay Home?

For many people, work isn’t about the amount of money they bring home. They enjoy what they do and like getting out of the house every day. However, for those who are working solely to help with expenses, full-time employment may not actually be to the household’s benefit. Here are a few additional things to consider:

  1. Hidden Costs of Daycare: You’ve received the cost of enrolling your child in daycare…. But what about the hidden costs? Most centers will charge extra if you’re late or your child needs to stay longer. If you’re paid hourly, understand that you may not be able to work overtime, or you won’t get paid if you need to stay home when your child gets sick. (Even if your child can’t attend, many facilities still require payment for the days he or she misses.) Will there be field trips or parties? Are the prices for those events included, or are they extra? Do you have to pay for food and supplies (such as diapers, formula, blankets, and toys)? Unfortunately, the price tag that daycares provide rarely reflect the actual price you’ll pay.
  2. Travel Expenses: How long does it take to drive to the care facility? Is it out of the way? What time is everyone getting home? How much are you spending on gas every month to get to and from your child’s child care?
  3. Food: It can be difficult to have the energy to cook dinner when you’re getting home after 6:30. Do you find the whole family is eating out more because of work, coupled with child care?

More Considerations

If you’re planning out your yearly expenses and know that your child will have to be enrolled in daycare soon, make sure to do your research early and know which ones you might want to consider. Many have wait lists and strict dates for enrollment. For toddlers to school-aged children, enrollment dates could easily begin as early as the spring before the school year begins. Infant daycares have more flexible enrollment periods, but it’s best to reserve a spot while you’re still expecting, especially if you plan on going back to work shortly after your child is born.

Don’t count on an affordable, middle-of-the-road facility when the time comes; these are often very popular and overbooked. Wait until the last minute and you may only be left with either the most expensive or less than ideal daycare options.

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CUNA 2021 diamond award trophy icon

CUNA 2021 Diamond Award Winner

Content Marketing

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