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Day Care Cost Savings
Cut Day Care Costs
Child daycare costs present a difficult dilemma for many growing families. Should mom return to work, or place her child, or children in a daycare setting? Should she pursue her career, or stay home to bond with her baby?
Understanding costs compared to mom’s take home pay after taxes and insurance deductions is very important.
Daycare rates vary widely based upon the type of care, the number of children, their life stage, and how long of a commitment you are able to make. Costs are tax deductible, and you should know how much the deduction is worth, and which tax vehicle provides the best savings.
Dependent Care FSA One way to reduce your expenses for child care is to make certain you are using the right tax savings vehicle for your personal situation. Many growing families find that a Flexible Spending Account helps the most. But the best approach depends upon a variety of factors unique to every family.
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Childcare Cost Considerations
Daycare costs vary by geographical region, the type of care, units of time, and child life stage.
The amount spent is typically higher in metropolitan areas when compared to suburban regions. You may find more stand alone facilities that specialize in daycare and toddler education services. Two income households are most common in cities, and the number of providers has grown to meet this demand.
Some families have an extra room in the house, and find a live in helper (nanny or au pair) works out well. The amount spent may already be covered if the nanny lives in the house, as the rent may offset a normal hourly, or weekly rate. Some providers set up operations out of their house, and can accommodate a small number of children.
Generally speaking the longer a commitment you make for childcare services the less you will have to pay on an hourly basis. For example, a daycare center where you sign a yearly contract will cost per week, per day, or per hour, etc.
The number of children and their age can impact what you expect to pay. Childcare for an infant is more costly as the ratio of care providers per child is much higher. As your child reaches the toddler stage, he or she requires less supervision. If you have twins, or multiple children in the same center, you may be able to negotiate a discount.
The amount spent is typically higher in metropolitan areas when compared to suburban regions. You may find more stand alone facilities that specialize in daycare and toddler education services. Two income households are most common in cities, and the number of providers has grown to meet this demand.
Some families have an extra room in the house, and find a live in helper (nanny or au pair) works out well. The amount spent may already be covered if the nanny lives in the house, as the rent may offset a normal hourly, or weekly rate. Some providers set up operations out of their house, and can accommodate a small number of children.
Generally speaking the longer a commitment you make for childcare services the less you will have to pay on an hourly basis. For example, a daycare center where you sign a yearly contract will cost per week, per day, or per hour, etc.
The number of children and their age can impact what you expect to pay. Childcare for an infant is more costly as the ratio of care providers per child is much higher. As your child reaches the toddler stage, he or she requires less supervision. If you have twins, or multiple children in the same center, you may be able to negotiate a discount.
Daycare Costs: Taxes and Deductions
Don’t look at child care spending in isolation. There are several factors that contribute to a “fully burdened” cost consideration. Think about after tax take home pay for mom, insurance premium deductions, and the tax deductible nature of this expense.
Many couples forget to consider the take home pay of the lowest earning spouse compared to what is spent on daycare. A dollar earned differs from a dollar spent. A dollar earned gets taxed to a much higher extent than a dollar spent on child care. A parent earning $20 per hour before taxes, might take home only $15 per hour. If daycare costs eat up $5 per hour, what is left? Is that enough incremental income to justify one parent returning to work. Do the right math before making this choice.
Another forgotten consideration is which spouse gets health care coverage. Remember that cost may rise also if this is your first child as your premium deduction moves from single parent, or husband wife, to parent and child, or full family. If the lower earning spouse was taking the insurance premium deduction to pay for health care, and chooses to stay at home, be sure to consider what the alternative costs of coverage.
Finally, daycare costs are tax deductible. You can take deductions for each child on your tax return, or use your dependent care flexible spending account.(FSA). Most couples will find greater savings using an FSA, if offered by their employer.
Many couples forget to consider the take home pay of the lowest earning spouse compared to what is spent on daycare. A dollar earned differs from a dollar spent. A dollar earned gets taxed to a much higher extent than a dollar spent on child care. A parent earning $20 per hour before taxes, might take home only $15 per hour. If daycare costs eat up $5 per hour, what is left? Is that enough incremental income to justify one parent returning to work. Do the right math before making this choice.
Another forgotten consideration is which spouse gets health care coverage. Remember that cost may rise also if this is your first child as your premium deduction moves from single parent, or husband wife, to parent and child, or full family. If the lower earning spouse was taking the insurance premium deduction to pay for health care, and chooses to stay at home, be sure to consider what the alternative costs of coverage.
Finally, daycare costs are tax deductible. You can take deductions for each child on your tax return, or use your dependent care flexible spending account.(FSA). Most couples will find greater savings using an FSA, if offered by their employer.
