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Will This 1 Expense Upend Your Finances?

By Maurie Backman - Aug 12, 2018 at 7:48AM

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Hint: It's an often unavoidable one for parents.

There's no question that having children is expensive. But working parents are learning the hard way just how much money it costs to secure child care.

For the fifth straight year, child care costs have climbed across the board, according to data from The average weekly cost for an infant in a day care center has reached $211, while the average weekly rate for a nanny has hit a whopping $580. Of course, these are just averages. In expensive areas of the country, you can expect to pay a lot more. The cost of child care has gotten so out of hand, in fact, that for one in three families, it eats up 20% or more of their annual household income.

Woman holding sleeping infant


If you're struggling to pay for child care, there are a few things you can do to ease the burden. At the same time, you might need to come to terms with the idea of making lifestyle changes that will help you cover those massive bills.

Capitalize on tax breaks

While avoiding high child care costs may be next to impossible, the good news is that there are certain tax breaks available to help offset them. First, there's the Child Tax Credit, which gives you $2,000 per tax year for every child in your household under the age of 17. And, because a portion of that credit is refundable, the IRS might end up paying you for it.

Furthermore, it used to be that the Child Tax Credit phased out for single tax filers earning over $75,000 and joint filers earning over $110,000. But effective this year, the credit doesn't start to phase out until your earnings exceed $200,000 as a single tax filer or $400,000 as a couple filing jointly, which means more families will no doubt manage to benefit from it.

Another tax break you might snag if you're paying for child care is the Child and Dependent Care Credit. Depending on your earnings, you can claim up to 35% of your child care expenses for a maximum of $3,000 for a single child, or $6,000 for two or more children under the age of 13. Keep in mind that unless you're a lower earner, you won't get to claim that full 35%. In a worst-case scenario, you'll be limited to 20% of your child care costs, which is less helpful but still better than nothing.

Finally, if your employer offers a dependent care flexible spending account (FSA), it pays to sign up for it. As a single parent or married couple filing jointly, you can allocate up to $5,000 a year in pre-tax dollars to cover your child care costs. The only catch is that FSAs work on a use-it-or-lose-it basis, so if you overfunded your account and don't rack up enough child care costs to deplete your balance, you risk forfeiting money. But given the numbers above, anyone paying for full-time child care is likely to reach that $5,000 threshold.

Now your savings from a dependent care FSA will depend on your effective tax rate. But to give you an idea as to how much extra cash you might pocket, let's assume you spend $5,000 or more on a day care center and that your effective tax rate is 25%. By putting the maximum amount of money into your FSA, you'll knock $1,250 off of your total tax bill.

Make smart lifestyle changes

While the above tax breaks will certainly help you manage the expense that is child care, don't underestimate the power of cutting corners in your budget to help ease the burden. Reducing your cable plan, canceling your gym membership, and dining out less often will all go a long way toward putting more cash in your pocket. The same holds true for downsizing your living space or unloading a second household vehicle if you can get by with one. The more expenses you cut, the more money you'll save -- even if you do inevitably wind up handing it right over to your day care center or nanny.

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