An affordable child care plan: How to save money on daycare with the help of your employer and the IRS

An affordable child care plan: How to save money on daycare with the help of your employer and the IRS

Holding a job often job takes precedence over staying at home, regardless of a family’s income bracket, or whether families are single or two-parent households.

So, when parents have to work, it’s essential that they have peace of mind not only by finding the most affordable and practical child care program,  but also that they’re putting their children in a place they trust.

A sensible child care plan starts with knowing what’s available and the cost, and then determining how each, or a combination of each, best fits the household budget. Just as important, however, is being aware of the extra household resources that are available from employers and the federal government to help defray the cost of what experts agree is the single largest slice of the household budget pie.

The costs of child care programs

Expenses for child care are often larger than expenses for shelter or for food and transportation combined, and sometimes on par with in-state college tuition.

However, according to a study by, referred to in, more than 4 of 10 households don’t budget for the expense.

Here are the types of formal arrangements available and the average weekly costs for each:

  • Nannies: Professionals who provide more than just child care, including responsibility for the physical, intellectual, and emotional development of infants and children. $565/week
  • Au pairs: Young adults from other countries who provide nanny-type support for about 45 hours a week, but who also live with and are part of the families on their off hours. $367/week
  • Babysitters: Normally persons attending school or working other jobs and who are available after school or in the evenings for 15 to 25 hours weekly. $232/week
  • Family day care (or home day care): Care provided in other people’s homes, many times in nearby neighborhoods, and often with far fewer children in care, enabling providers to offer homier, more personal care. $200/week
  • Day care centers: Normally nonresidential, drop-off facilities that provide full or half-day structured care that may include developmental activities with classroom books and digital media. $211/week

As a percent of median family income, child care costs vary greatly by state. Check out Child Care Aware® of America’s interactive tool to see how much parents should expect to budget each month depending on the state in which they live.

The amount can range anywhere from 10 to 25 percent of a household’s budget.

How families should start thinking about a child care plan

To find an affordable child care program, families should start exploring their options long before they plan to put their children in care. Part of that process is knowing how much they have to carve out of their monthly budget.

The next step is research — finding out what’s available and affordable in their area. Parents should first consult with the Child Care Resource and Referral agency in their area. Then do some legwork, visiting or calling different providers, armed with a list of questions about their child care services — not just costs, but also adult-to-child ratios, licensing and accreditation, child age range, and other issues that work toward the trustworthiness of their arrangement.

Two-parent families also have an important decision that may affect how they budget for child care. According to the survey:

About two out of three parents, claim that child care costs influenced their career decisions, such as:

  • 33 percent changing jobs
  • 27 percent requesting more flexible work schedules
  • 23 percent adjusting to part-time schedules or becoming stay-at-home parents in order to save money on child care

For some families, it may be more affordable for one parent to remain at home. Above all, however, it’s important that one or both parents talk with their human resource representatives to see whether flextime arrangements are available with their companies. Flextime frees up expenses that may make child care services much more affordable with other options such as:

  • Relying on family members and relatives to provide some of the time for care
  • Finding out whether friends with children may be on flextime and are willing to arrange for shared child care
  • Checking whether stay-at-home moms or dads are available in the neighborhood and arranging for part-time care for a portion of the workweek

If flextime isn’t an option, here are a few other ways you can keep costs down:

  • Religious-based care: Normally providing quality child care services at a lower rate
  • Income-based options: Programs with sliding-scale fees or other income-driven options, such as Head Start or tribal-based programs
  • Pre-K programs: Available in some states

Help from employers and the IRS

Families can decrease their child care expenses significantly by taking advantage of two tax-related cost savings. One is a program offered by some employers. The other is a specific tax break from the federal government. This IRS child care tax credit is in addition to the $1,600 child tax credit available to families for each child younger than 16 that the IRS is allowing as of tax year 2018.

Note: Income thresholds, tax receipt requirements, and other IRS rules and regulations apply to each cost-saving vehicle. Parents must fill out proper tax forms as well. We urge parents to use their tablets, laptops, or computers to research these options more thoroughly.

To find out more about child care tax deduction, visit the IRS topic page for a brief explanation of the Child and Dependent Care Credit (CDCTC) and IRS Publication 503 for a complete breakdown of income and care expense eligibility rules.

To find out more about employer-provided Flexible Spending Accounts (FSA), visit your human resources representative and ask whether the FSA is available at your workplace. If so, enroll but make sure to budget carefully as funds do not rollover to the next year. If your company doesn’t offer an FSA, visit the websites of trusted experts on child care, including,, and Child Care Aware of America to arm yourself with information that justifies the FSA at your workplace. Then revisit with your  human resources representative and ask them to visit or BenefitHelp Solutions for more information on the FSA from an employer’s perspective.

FSAs offered by employers

An FSA is a nontaxable “fund” that allows families to set aside up to $5,000 annually (or $2,500 for married individuals filing separate returns) for the care of a child under 13. The employer deducts a set amount from each paycheck and reimburses the worker that amount to pay for a child care plan. The deducted amount essentially lowers the taxable earnings (adjusted gross income) of individuals, so they also pay less in taxes annually.

In 2014, the Bureau of Labor Statistics estimated that 36 percent of workers had access to a “dependent care reimbursement account.” However, the study found that only 31 percent of employees actually take advantage of benefits such as FSAs, while a full 85 percent of working parents wish their employers offered child care benefits.

Parents have to be aware of the actual cost relief that is available, or they have to be more active in lobbying their human resources departments or small business owners to create an FSA opportunity.

Child and Dependent Care Tax Credit

Similarly, the survey suggests that 52 percent of parents don’t know they are eligible for child care tax credits in addition to the child tax credit.

The child care credit, claimed as a deduction from adjusted gross income (AGI) on IRS Form 2441, is worth between 20 and 35 percent of up to $3,000 spent on “qualifying” child care for one child age 13 and under, or up to $6,000 spent for two or more children.

Families with an AGI of $15,000 or less receive the full 35 percent credit. Families with an annual AGI of more than $43,000 receive only 20 percent credit. In between these AGIs, the credit percentage is higher than 20 percent or lower than 35 percent.

The best news for families is that a wide range of day care “arrangements” qualify as expenses in addition to formal personal or institutional day care centers, including:

  • Babysitters
  • Day camps or summer camps (with the exception of overnight camps)
  • Sports or activity-related camps
  • Before and after-school care

A sensible child care plan has to factor into a slew of considerations. Take a look at these insights into the costs of care and the options available. More important, by using a bit of ingenuity, mixed with some research and legwork, parents can go a long way toward an arrangement that is on par with budgetary considerations, while providing a sense of well-being for all parents who work hard to provide for their children.