As a parent and a professional I have battled – it seems like endlessly – over the past eight years to find a balance between my job and my kids, between ensuring that my three babies got the love and care they needed while I provided for them. In this journey, I have been incredibly fortunate with a supportive spouse who has worked two jobs when needed and who shares parenting duties with me equally when home. However, it’s still been a struggle and mine is, by far, a walk in the park compared to the barriers many other parents face.
The fact is that finding safe, effective childcare solutions is hard enough on its own. Once you add in the need for affordability, you have a problem that affects millions of children and their parents each year, keeping many capable professionals (mostly women) out of the workspace and minimizing the affects of those who are in it.
It’s a deep issue that goes beyond finances, but that’s a story for another day. For now, identifying the ways that many of us can save money on childcare costs that range from leveraging tax benefits to maximizing employer-sponsored programs, is an important first step. Clearly, each person’s situation is unique and far too many parents work odd hours and/or make too little to afford any childcare, much less quality care, and that’s a problem. However, saving money is important too and as the school year approaches, taking some time to evaluate your own childcare situation and finding ways to save money in it is a smart move for those in the position to do so.
Facts on Childcare in America
According to the latest statistics from 2015, approximately 11 million children under age 5 are in some form of childcare arrangement each week. On average, these children spend 36 hours in such an arrangement which includes everything from center-based care to nannies and grandparents. For this, the average American family pays $18,000 per year, according to a 2015 Care.com study, making childcare the single largest expense line on their budget, including housing costs.
Even more concerning, depending on where you live, these costs can be much more, as Childcare Aware America discovered in its 2015 report. Ranking states by the percentage of their income dedicated to childcare costs it found that my home state of New York was among the worst, with all family types dedicating at least 10% of their income (the maximum recommended amount) to childcare. Real numbers were even more concerning, ranging from just over 10% to nearly 100% for single parents with two children. Center-based childcare for infants in New York also costs nearly twice the rate of public college tuition ($14,144 vs. 7,292). Similarly, in New Jersey percentages range from 10%-70% of annual income despite the fact that the state’s average income is over $110,000.
5 Ways to Save Money on Your Childcare Bill
Whether you join me in the singular struggle of finding affordable childcare in New York or whether you live in another state with more affordable (but still expensive) options, the good news is that there are some ways to ease this burden on your budget. In fact, there are some pretty signifiant tax breaks to consider along with a number of options and strategies to use that many parents may not know about. Balancing these options with the type of childcare that works for you and your family is the best way to maximize your spending in this key category.
1. Flexible Spending Accounts
Flexible Spending Accounts or FSAs are offered by a number of large and some small employers. These accounts allow you to set aside a certain amount of money ($5,000 maximum per family) tax-free to spend on essentials including childcare (healthcare is also included). The trick to the FSA is that the funds expire at the end of the year, so it is important to plan accordingly and make sure you use all of your allotted money on childcare or other acceptable expenses before December 31st. The real benefit of the FSA is that the deductions come out of your regular paycheck, making them easier to manage and apply towards a regular childcare bill.
To learn more, ask your company’s HR department.
2. Childcare Tax Credit
In some sense, the childcare tax credit is a bit of a copy off of the FSA, offering parents tax-free money to go to work. So, basically if you have one you don’t necessarily get as much benefit from the other. The difference here is that the Childcare Tax Credit has a maximum of $3,000 per child and $6,000 per family and is offered to everyone, whereas the FSA is employer-specific. If you utilize both an FSA and the Childcare Tax Credit, the first tax break applies to the FSA so that you would only be able to obtain a maximum $1,000 credit (the first $5,000 goes to the FSA). Savvy savers, however, can use their yearly childcare tax credit reimbursement to seed a childcare account and ease the burden of payment each month.
3. Compare Real Costs
When you are adding childcare costs into your family’s budget it may be tempting to look at it as a straight line item. For example, $150 per week. However, there are often some hidden costs (or savings) to be had within this line if you look around at different care centers and arrangements. Here are some questions you can ask to uncover the “real costs” of childcare and, potentially, save money on alternatives:
- Does your childcare center close for holidays? If so, does it still charge regular tuition?
- How are sick days treated? With a nanny or home care you are less likely to have to stay home yourself.
- What is their policy for vacations? Some centers offer unpaid vacation benefits so you do not pay if your child is not there.
- Do you have to schedule a certain number of days or certain schedule (i.e. Mon-Wed-Fri or Tues-Thurs)?
- Are summers treated differently than the school year?
- Can you get before/after school care for older children at the same location?
Each of these factors can affect the overall price of childcare throughout the year, thus, ultimately, reducing or increasing it as a line on your budget. That is why it is important to figure out the real yearly cost and divide it by 52 weeks or 12 months when calculating your childcare charges rather than taking your weekly or monthly bill at face value.
4. Flex Schedules
Does your employer support flexible schedules? Or, can you work part time rather than full time?
Some companies are more family-friendly than others and many others are jumping on the bandwagon of work-life balance, allowing arrangements such as four, 10-hour work days or a work-at-home option which can reduce both childcare and commuting costs. Work-from-home careers are also a possibility, though they don’t necessarily eliminate your need for childcare (believe me!). What you can do, however, is arrange for the type of at-home part or full time job that allows you to work weekends or evenings when your spouse is home or a grandparent is available. While this may not be ideal in terms of career advancement and, obviously is only practical for certain workers, flex jobs and working at home have saved my own childcare budget time and time again over the years. It’s totally worth a look.
5. Childcare Co-Ops
Finally, for parents with those flexible schedules and no help from family, the concept of childcare co-ops are worth exploring. In this arrangement friends and neighbors with similar parenting styles barter for childcare. For example, one parent will watch both sets of children Mondays and Wednesdays while the other watches them Tuesdays and Thursdays, thus allowing each to work part time. This is a great solution for work-from-home parents or even someone working a local part time job. The key here is a willingness and ability to dedicate time, rather than cash, to providing and receiving childcare.