|
Good child care doesn't
have to come with sticker shock. With careful planning you can trim your
costs whether you're using in-home care, a day-care center or a nanny. Below
are five strategies for saving on child care, from tax benefits to
partnerships with other parents.
1. Slash your taxes. Look into flexible spending accounts, offered through
many employers. This plan allows you to deduct the costs of child care (as
much as $5,000 a year per household) from your pretax income, thereby
lowering your taxable earnings. That could equal considerable savings come
April 15.
Here's how it works: A married couple claiming one exemption with a combined
income of $50,000, and $5,000 in child-care expenses, would save $1,504 with
a flexible spending account.
|
|
With the flexible
spending plan |
Without the
flexible spending plan |
|
Income |
$50,000 |
$50,000 |
|
Pre-tax
child-care deduction |
$5,000 |
$0 |
|
Subtotal |
$45,000 |
$50,000 |
|
Social Security |
$2,790 |
$3,100 |
|
Medicare |
$652.50 |
$725 |
|
Federal taxes |
$5,377.50 |
$6,199 |
|
State taxes |
$1,150.74 |
$1,450.74 |
|
Disability |
$158.84 |
$158.84 |
|
Post-tax
child-care payment |
$0 |
$5,000 |
|
Yearly take-home
pay |
$34,870.42 |
$33,366.42 |
Note: Keep
in mind that once you set aside the funds, you must use the money for
child-care benefits by year's end or lose it. And the facility or caregiver
you use must be licensed and registered.
2. Get the tax credit you're entitled to. Income earners are eligible
for a child-care credit of 20 percent of their child-care costs, maxing out
at $2,400, for a tax credit of up to $480 per child. To claim this
deduction, fill out Form 2441 along with your regular tax forms (click
here for the IRS's Web site). Keep track of your child-care expenses and
save your receipts. You become ineligible for the child-care credit if you
enroll in a flexible spending plan, so choose what's best for you. This
chart shows the potential savings:
|
Status/
taxable
income |
Child-
care
costs |
Tax
savings
through
flex
spending |
Tax
savings
through
child-
care
credit |
|
Single
parent
of one;
$25,000 |
$2,000 |
$360 |
$400 |
|
Single
parent
of one;
$50,000 |
$5,000 |
$1,750 |
$480 |
|
Single
mother
of two;
$75,000 |
$5,000 |
$1,865 |
$960 |
|
Married
couple,
one
infant;
$40,000 |
$4,500 |
$900 |
$480 |
|
Married
couple,
one
toddler;
$100,000 |
$5,000 |
$1,865 |
$480 |
|
Married
couple,
two
infants;
$60,000 |
$5,000 |
$1,865 |
$960 |
3. Beat the clock.
When using a day-care
center, be mindful that your bill can skyrocket if you lose track of time.
Some providers charge up to $1 for every minute you're late. Coordinate your
schedule with your partner so your child can be dropped off later or picked
up earlier. Anticipate traffic and be on time (or early) for pickup.
4. Strike a deal. Some places may allow you to help out with cleaning
or making snacks or meals in exchange for a discount. "I volunteer at my
son's day care on a regular basis and our fee is cut," says Spring Barnickle
of Nashville, Tenn. This may not be an option in most places, however, which
generally rely on voluntary support from parents to keep the costs down for
everyone.
5. Share the burden. Split the cost of a nanny or au pair with
friends or neighbors who have children. Or consider setting up a babysitting
co-op. When you need sitting just for a couple of hours here and there,
you're best off swapping with neighbors or friends who have children. Keep
track of the hours to insure that both parties use up the time owed them.
This kind of trade works well for evenings out as well. |
