For busy working parents, day care for their children really isn’t an option. Unless you have a relative or friend who can watch your child regularly and at a greatly reduced cost, you’ll have to budget for child day care services. Freedom Financial Asset Management says you should expect to spend $4,000 to $18,000 per year for a daycare center.
Quality of the daycare is at the top of the list. As parents, we certainly want a safe environment and a reputable daycare center for our child. But the more in demand a specific center is, the further out of reach it will be financially.
In this article, Freedom Financial Network shares several tips for dealing with the high cost of child care.
Budgeting Your FSA
If both parents are working, there’s a good chance at least one employer will offer a flexible spending account as part of your benefits package. Funding an FSA can save you up to one third (~$2000) per year on child care expenses through tax savings, depending on your tax status.
Freedom Financial Network points out that you have to be careful when funding an FSA. Any money you don’t use is money you’ll lose. Since child care is a fairly consistent monthly expense, it’s easy to budget for.
An FSA allows for a maximum budget of $5000. If you are like most parents, you’ll pay at least twice that amount in child care. In that case, maxing out your FSA is probably a good idea. But if your child care cost are closer to $5000 per year, you might consider contributing a little less than the maximum so you don’t lose anything.
Child and Dependent Care Tax Credit
Another option for tax relief is available through Form 2441, which is the child tax credit. This credit is 20 to 35 percent of child care expenses up to a limit. Through itemization, you can rack up to $3,000 in child care cost. This translates into $1,200 worth of tax savings.
If you have two children, that means itemizations of up to $6,000. Note that children must be 12 years of age or younger to qualify.
State Child Care Assistance
Many states offer assistance for child care. You apply for assistance with your state and if approved, they’ll present options available for you.
Freedom Financial Network mentions that services offered through state assistance include family child care homes, child care centers, head start, preschool programs, vacation and summer care programs, care in your home and more.
If you’d like to see which programs you might qualify for through your state,childcareaware.org is a great place to start.
Employer Child Care Assistance
Some employers offer in house day care. This might not be discounted compared to other day cares but when you factor in the cost and time of driving to day cares, it’s can be an advantage.
There are also Dependent Care Assistance Programs offered by employers. These programs offer pre-tax reimbursements of up to $5,000 annually for married couples.
If you are finding child care cost overwhelming, contact Freedom Financial Network and let them help you build a plan for managing your child care cost burden. You can reach them at freedomplus.com.