7 Ways to Save on Child Care

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Children bring joy, but they don’t come cheap. In addition to food, clothes and medical expenses, working parents may find they are out thousands of dollars for child care.

“The price can be really shocking, especially if it’s your first child,” says Kimberly Palmer, author of “Smart Mom, Rich Mom: How to Build Wealth While Raising a Family” and a former senior editor of personal finance at U.S. News. As a mother in Washington D.C., she notes the cost for infant day care in some urban areas can run as much as $2,000 a month.

To help bring that cost down, here are seven strategies to try.

Shop around for the best deal.

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As with other products and services, there can be wide variation in the price of child care. What’s more, some centers may include transportation or meals in their price, making them a better value. Others may offer multi-child discounts.

While shopping around can be smart, making a decision based on price alone is not. Make sure a provider meets state licensing requirements, and check for any past violations or disciplinary action. “You never, ever want to compromise your child’s safety,” Palmer says.
Use a dependent care flexible spending account.

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Many employers offer workers the opportunity to open a dependent care flexible spending account. Up to $5,000 of pre-tax dollars can be deposited into the account each year. Jody Dietel, chief compliance officer for benefits provider WageWorks, says workers could save as much as 30 to 40 percent depending on a person’s state and federal tax rates. “That can pay for your summer vacation,” she says.

Money in a dependent care flexible spending account must be used each year or, if allowed by an employer, within a 90-day grace period at the end of the year. In addition to regular child care, funds from the account can be used to pay for summer day camps. “Sometimes people think these accounts are cumbersome,” Dietel says. “[But] the IRS is quite flexible.” If a worker’s child care situation changes, he or she may be able to adjust contributions to the account, even outside the open enrollment period.

Apply for the child and dependent care tax credit.

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Families with child care expenses can also apply for the child and dependent care tax credit. This non-refundable tax credit can shave up to $3,000 off income taxes for a family with one child receiving care or $6,000 for those paying for two or more children. Eligible children must be younger than age 13, and taxpayers must report the Social Security number or federal tax identification number for their child care provider in order to get the credit.

Although the credit is capped at $3,000 for a single child, many parents get less. That’s because households with incomes in excess of $40,000 a year get a reduced credit worth 20 percent of their child care expenses. “It’s a $600 tax credit for a lot of families,” says Jared Snider, senior wealth advisor with Exencial Wealth Advisors in Oklahoma City.

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Families can’t double dip by claiming a tax credit for care paid with money from a dependent care flexible spending account. However, many parents find they max out their flexible spending account and still have child care expenses to cover. In those cases, the out-of-pocket costs can be used to claim the credit.

Start a child care co-op.

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When interviewing moms for her book, Palmer says she regularly heard stories of families creating co-op daycares. “Instead of exchanging money, they barter care,” she explains. A co-op can be a great way to save money, but parents should take care not to run afoul of any licensing rules or housing restrictions. Local ordinances and state laws may require co-ops to be licensed and inspected while some homeowners or condo associations may prohibit these types of arrangements.

Rearrange your work schedule.

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Another way to save money is to rearrange work schedules to minimize the amount of care needed. Parents might be able to work opposite shifts, and some employers may be open to arranging flexible work schedules. “Maybe it means working four days for 10 hours,” Snider says. “I have a client who’s a graphic designer who worked it out to work from home a couple days a week.”

Ask about workplace benefits.

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Large employers may offer on-site daycare at a discount for workers. Even if they don’t, companies may provide other forms of child care assistance. “Some employers offer a referral service to help you find day care as well,” Dietel says. Snider recommends parents or would-be parents look for these and other child care related benefits whenever they are in the market for a new job.

Quit your job.

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Some dual-income families may find it makes financial sense to have one parent stay home rather than pay child care costs. This may be especially true in areas where care is very expensive. A parent with a low-paying job may find all his or her income is going toward child care and job expenses. Quitting or dropping to a part-time schedule may serve to both save money and simplify family life.

Saving on child care isn’t as easy as clipping coupons or shopping a sale. However, by using these seven strategies, families can find significant savings and a safe environment for their youngest members.

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