Holding down a job is challenging in its own right, but when you have children, it can suddenly become a more daunting prospect -- especially when you consider the cost of child care these days. The average American spends an estimated $9,006 on child care each year, says GOBankingRates. Meanwhile, the average U.S. salary is $51,960, says The Ascent, a division of The Motley Fool, based on data from the Bureau of Labor Statistics. As such, the typical worker with kids is spending over 17% of their income just to maintain the ability to bring home a paycheck.
If you're struggling to keep up with the cost of child care, you're clearly not alone. But a few smart moves on your part could help make that expense more manageable.
Reap all the tax savings you can
Choosing your child care wisely could help make it more affordable. But at the end of the day, if the going rate for full-time care in your area is somewhere in the ballpark of $9,000, there may be little you can do to lower your costs.
That said, being tax-savvy could make the burden of child care a bit easier to absorb. For one thing, put money into a dependent care flexible spending account (FSA). You may be familiar with the healthcare version of this account, and if so, the dependent care component works similarly.
You can set aside up to $5,000 a year in pre-tax dollars to pay for qualified expenses like day care centers or summer camp. If your annual child care spending is anywhere close to that of the average American's, then you'll have no problem maxing out that account. Meanwhile, you won't pay taxes on $5,000 of earnings, thereby saving yourself some money in the process.
It also pays to explore the tax credits you're entitled to. The Child Tax Credit gives you up to $2,000 per child in your household under the age of 17. You'll qualify for the credit in full if your income doesn't exceed $200,000 as a single tax filer or $400,000 as a couple filing jointly.
There's also the Child and Dependent Care Credit, which gives you anywhere from 20% to 35% back on up to $3,000 in child care costs for one child or up to $6,000 for two or more children under the age of 13. This credit applies if you're paying for child care so you can either work or look for work, and you can claim it as long as your tax status isn't married filing separately.
As a reminder, a tax credit is a dollar-for-dollar reduction of your tax liability. If you owe the IRS $4,000 as a result of underpaying your taxes but you score $4,000 in credits, you'll wipe out the amount you owe entirely.
Taking advantage of a dependent care FSA and tax credits won't reduce the amount you spend on child care -- but they will put more money back in your pocket at the end of the year. And that's one way to make a whopping expense just a bit less painful to deal with.